Responsiveness of Residential Electricity Demand in OECD Countries: A Panel Cointegation and Causality Analysis

FCN Working Paper No. 8/2011

33 Pages Posted: 16 Jul 2011

See all articles by Ronald Bernstein

Ronald Bernstein

RWTH Aachen University - E.ON Energy Research Center

Reinhard Madlener

RWTH Aachen University

Date Written: April 2011

Abstract

In this paper we estimate residential electricity demand elasticities and conduct an analysis of the causal relationship between electricity demand, disposable income and electricity price for a group of several OECD members. We apply panel cointegration and Granger causality testing to a data set consisting of eighteen countries in the cross-sectional dimension and the years 1981–2008 in the time domain. Our results for the whole panel indicate a near unity income elasticity and an inelastic price elasticity of approximately –0.4 in the long run. These results are robust with regard to the estimation methods employed (group-means panel FMOLS and DOLS). In the short run, our estimates from an ECM indicate an income elasticity of 0.2 and a price elasticity of approximately –0.1. Moreover, our tests on Granger causality provide an indication for a bidirectional causal relationship between electricity consumption and economic growth. Hence, our findings are in favor of the feedback hypothesis.

Keywords: Residential electricity demand, Elasticities, Panel cointegration, Granger-causality, OECD countries

JEL Classification: Q41, Q43

Suggested Citation

Bernstein, Ronald and Madlener, Reinhard, Responsiveness of Residential Electricity Demand in OECD Countries: A Panel Cointegation and Causality Analysis (April 2011). FCN Working Paper No. 8/2011 . Available at SSRN: https://ssrn.com/abstract=1887044 or http://dx.doi.org/10.2139/ssrn.1887044

Ronald Bernstein (Contact Author)

RWTH Aachen University - E.ON Energy Research Center ( email )

Mathieustrasse 6
Aachen, 52074
Germany

Reinhard Madlener

RWTH Aachen University ( email )

School of Business and Economics / E.ON ERC
Mathieustraße 10
Aachen, 52074
Germany
+49 241 80 49 820 (Phone)
+49 241 80 49 829 (Fax)

HOME PAGE: http://www.eonerc.rwth-aachen.de/fcn

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