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Estimation of the electricity demand function using a lagged dependent variable model
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  • Journal title : Journal of Energy Engineering
  • Volume 25, Issue 2,  2016, pp.37-44
  • Publisher : The Korea Society for Energy Engineering
  • DOI : 10.5855/ENERGY.2016.25.2.037
 Title & Authors
Estimation of the electricity demand function using a lagged dependent variable model
Ahn, So-Yeon; Jin, Se-Jun; Yoo, Seung-Hoon;
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The demand for electricity has a considerable impact on various energy sectors since electricity is generated from various energy sources. This paper attempts to estimate the electricity demand function and obtain some quantitative information on price and income elasticities of the demand. To this end, we apply a lagged dependent variable model to derive long-run as well as short-run elasticities using the time-series data over the period 1991-2014. Our dependent variable is annual electricity demand. The independent variables include constant term, real price of electricity, and real gross domestic product. The results show that the short-run price and income elasticities of the electricity demand are estimated to be -0.142 and 0.866, respectively. They are statistically significant at the 5% level. That is, the electricity demand is in-elastic with respect to price and income changes in the short-run. The long-run price and income elasticities of the electricity demand are calculated to be -0.210 and 1.287, respectively, which are also statistically meaningful at the 5% level. The electricity demand is still in-elastic with regard to price change in the long-run. However, the electricity demand is elastic regarding income change in the long-run. Therefore, this indicates that the effect of demand-side management policy through price-control is restrictive in both the short- and long-run. The growth in electricity demand following income growth is expected to be more remarkable in the long-run than in the short-run.
electricity demand function;price elasticity;income elasticity;short-run;long-run;lagged dependent variable model;
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