Facebook LinkedIn Twitter

IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Price Asymmetry in Energy Demand Models: A Proxy for Energy-Saving Technical Change?

It has become fashionable to believe that energy and oil demand respond asymmetrically to price increases and decreases. Unfortunately, the asymmetric price model utilized by Gately and others has the unintended by-product of producing intercept shifts in the demand function purely in response to price volatility. Thus what is in fact energy saving technical change is attributed to price asymmetry. The two become observationally equivalent. Furthermore, the asymmetric price model has the peculiarity of being dependent on the starting point of the data period so that parameter estimates are not robust across different sample periods. We demonstrate empirically using a panel of OECD countries for oil and energy demand that symmetric price responses cannot be rejected after explicitly controlling for energy saving technical change within a fixed effects model.

Purchase ( $25 )

Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Sectoral Energy Demand & Technology; Energy Modeling – Other

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q55 - Environmental Economics: Technological Innovation
C59 - Econometric Modeling: Other

Keywords: Energy demand, price asymmetry, OECD, technology change, oil demand

DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No2-1

Published in Volume 26, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.