Modelling asymmetric price responses of industrial energy demand with a dynamic hierarchical model

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Abstract

Accounting for asymmetric price responses while modelling industrial energy demand is required for a good understanding of the long-run properties of energy demand. This is to prevent formulating energy related policies on incomplete information resulting from masking the impacts of long-run impacts of different phases of energy price. Hence, this paper explores the asymmetric price responses of industrial energy demand for a panel of 54 sectors across 34 countries over the period 2000–2014 using a dynamic hierarchical model. The empirical results from both the regional and sectoral analysis indicate a considerable heterogeneity in the estimated long-run elasticities and preference for using hierarchical model. Further, the estimated elasticities in general indicate that producers are more responsive to price increases than price decreases. In addition, empirical findings reveal that industrial energy demand is characterised by endogenous factors embedded in the asymmetric price effects. From a policy perspective, these findings provide an evidence of marked long-run impacts of energy demand (that are not observable from a traditional symmetric energy consumption pattern) required in formulating dependable energy policies.
Original languageEnglish
Article number105255
JournalEnergy Economics
Volume98
Early online date2 Apr 2021
DOIs
Publication statusE-pub ahead of print - 2 Apr 2021

Keywords

  • Asymmetric price responses
  • Dynamic hierarchical model
  • Industrial energy demand
  • Long-run elasticities

ASJC Scopus subject areas

  • Economics and Econometrics
  • Energy(all)

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