Modelling Technical Progress: An Application of the Stochastic Trend Model to UK Energy Demand

Lester Hunt, Guy Judge and Yasushi Ninomiya
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Yasushi Ninomiya: Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey

No 99, Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) from Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey

Abstract: The precise role of technical progress in estimated energy demand functions has not been well researched. Traditionally a deterministic time trend has been used, implicitly assuming technical progress continues at a fixed rate over time. In this paper, the structural time series model is employed allowing for a stochastic time trend and stochastic seasonal dummies. Therefore, technical progress and seasonal variation are treated as unobservable components that evolve over time. The conventional deterministic trend model is a restricted case of the structural time series model and found not to be accepted by the data for a number of energy types. Energy demand functions for a variety of energy types are estimated for the UK using unadjusted quarterly data. It is found that technical progress in energy usage does not always exhibit a deterministic trend pattern as the conventional model assumes. It often fluctuates over time and is likely to be affected by a range of exogenous factors but also by changes in energy prices (and possibly income also).

Keywords: energy demand, technical progress, stochastic trend model, seasonality (search for similar items in EconPapers)
JEL-codes: C52 Q41 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2000-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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