Are Shocks to Natural Gas Consumption Transitory or Permanent? A More Powerful Panel Unit Root Test on G7 Countries

Abstract

This article re-examines the persistence in natural gas consumption using an alternative methodology. We compare the results of traditional panel unit root tests with those provided by Bahmani-Oskooee et al., which allow for both sharp and smooth breaks. Our analysis uses data for the G7 countries over the 1965–2016 years. The empirical findings show that while traditional unit root tests with sharp breaks lean towards the non-stationarity of the series for all the G7 countries, modeling breaks in our unit root testing methodology can assert that natural gas consumption is non-stationary only for Canada, France, Italy, and USA. These results imply that, for the majority of our sample, energy demand management policies designed to shrink energy consumption will have temporary effects, as energy consumption will return to its trend path.

Keywords: natural gas consumption; panel unit root; structural breaks; G7 countries