Time-varying Long-run Income and Output Elasticities of Electricity Demand

Year: 
2014
Working Paper Number: 
WP 14-09
Abstract: 

It is widely accepted that long-run elasticities of demand for electricity are not stable over time. We model long-run sectoral electricity demand using a time-varying cointegrating vector. Specifically, the coefficient on income (residential sector) or output (commercial and industrial sectors) is allowed to follow a smooth semiparametric function of time, providing a flexible specification that allows more accurate out-of-sample forecasts than either fixed or discretely changing regression coefficients. We fit the model to Korean data over 1995:01-2012:12 for the residential sector and 1985:01-2012:12 for the commercial and industrial sectors. The rapid development of Korea over this period provides a very clear case for allowing the coefficient on income/output to vary over time, but the essential modeling strategy is widely applicable.

Published in Energy Economics 2014

JEL Codes: 
C14, C22, Q41
Authors: 

Yoosoon Chang

Chang Sik Kim

Joon Y. Park

Sungkeun Park

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