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Time-varying Long-run Income and Output Elasticities of Electricity Demand with an Application to Korea

Energy Economics

Yoosoon Chang, Kim, Chang Sik, Miller, J. Isaac, Joon Y. Park, Park, Sungkeun
Publication Date
2014

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.

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Citation

Chang, Yoosoon, (Co-Author, Indiana University), Kim, Chang Sik, (Co-Author, Sungkyunkwan University), Miller, J. Isaac, (Co-Author, University of Missouri), Park, Joon Y., (Co-Author, Indiana University), Park, Sungkeun, (Co-Author, Sungkyunkwan University), "Time-varying Long-run Income and Output Elasticities of Electricity Demand with an Application to Korea", Published. Energy Economics, vol 46, pp. 334-347. Published 2014.