This study investigates two practical questions . output(GDP) elasticity and price elasticity in long-run energy demand. To retrieve the optimal level of energy demand in case of price shock, we need long-run elasticities rather than short-run ones. E...
This study investigates two practical questions . output(GDP) elasticity and price elasticity in long-run energy demand. To retrieve the optimal level of energy demand in case of price shock, we need long-run elasticities rather than short-run ones. En route to solve the above questions, we contrast a couple of main methodological or empirical issues. The First issue concerns dynamic specifications to figure legitimate long-run elasticities (linear vs. non-linear Koyck model). The second issue concerns the most appropriate estimator among four pooling estimation techniques (Between, OLS, LSDV, Error-Components). The third issue concerns aggregation method (Btu vs. Divisia) by which aggregate energy(E) and aggregate energy Price (PE) are measured. In this study, however, Divisia index was chosen for energy aggregation. From the contrast of performances across the above issues, we obtain the real long-run elasticities.