Electricity demand elasticities and temperature: Evidence from panel smooth transition regression with instrumental variable approach

Chien-Chiang Lee () and Yi-Bin Chiu

Energy Economics, 2011, vol. 33, issue 5, 896-902

Abstract: This study applies a non-linear model, i.e. the recently developed panel smooth transition regression (PSTR) model, and takes into account the potential endogeneity biases to investigate the demand function of electricity for 24 OECD countries from the period 1978-2004. Our empirical results demonstrate that there is a strongly non-linear link among electricity consumption, real income, electricity price, and temperature, a result that is new to the literature. As real income rises, electricity consumption rapidly increases first, and after the level of real income exceeds approximately US$2500, its increasing rate turns slow down. An increase in electricity price has a negative or no influence on electricity consumption. Evidence of a U-shaped relationship between electricity consumption and temperature is supported, and the threshold value of temperature is approximately 53 °F, which is endogenously determined. Furthermore, the estimated elasticities of time dynamic indicate that electricity demand is income inelastic, price inelastic, and temperature inelastic. As time goes on, the absolute elasticities of electricity demand gradually decrease with respect to real GDP and electricity price, whereas they gradually increase with respect to temperature, suggesting that the impact of temperature on electricity demand is becoming more important in recent years.

Keywords: Electricity; consumption; Nonlinearity; Panel; smooth; transition; regression; Real; income; Temperature (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988311001149
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:33:y:2011:i:5:p:896-902

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().