Estimating underlying energy demand trends using UK annual data

J. Dimitropoulos, Lester Hunt, Guy Judge

Research output: Contribution to journalArticlepeer-review

Abstract

Employing the Structural Time Series Model (STSM) approach suggested by Harvey (1997), and based on annual data for the UK from 1967–2002, this paper reiterates the importance of using a stochastic rather than a linear deterministic trend formulation when estimating energy demand models, a practice originally established by Hunt et al. (2003a, 2003b) using quarterly UK data. The findings confirm that important non-linear and stochastic trends are present as a result of technical change and other exogenous factors driving demand, and that a failure to account for these trends will lead to biased estimates of the long-run price and income elasticities. The study also establishes that, provided these effects are allowed for, the estimated long-run elasticities are robust to the different data frequencies used in the modelling.
Original languageEnglish
Pages (from-to)239-244
Number of pages6
JournalApplied Economics Letters
Volume12
Issue number4
DOIs
Publication statusPublished - 2005

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