This is a Free article. You will receive access to the full text.

Interfuel Substitution: Evidence from the Markov Switching Minflex Laurent Demand System with BEKK Errors

Free Article

Abstract:
We investigate interfuel substitution in the United States using the minflex Laurent demand system and a century of data (from 1919 to 2012). We relax the assumption of constant parameters in the demand system, and also relax the homoskedasticity assumption, instead assuming that the covariance matrix of the errors is time-varying. Our results are consistent with theoretical regularity and indicate that the Morishima elasticities of substitution are always positive for all pairs of the energy goods (suggesting substitutability), but exhibit large swings across two regimes, generally being higher in the high demand volatility regime before the 1950s.

Download Executive Summary Download PDF

Keywords: Minflex Laurent flexible form, Markov regime switching, GARCH, BEKK

DOI: 10.5547/01956574.40.6.aser

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 40, Number 6 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

© 2022 International Association for Energy Economics | Privacy Policy | Return Policy