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Residential Natural Gas Demand Elasticities in OECD Countries: An ARDL Bounds Testing Approach

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  • Bernstein, Ronald

    (E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)

  • Madlener, Reinhard

    (E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)

Abstract

In this paper we analyze residential natural gas demand in twelve OECD countries using time series data from 1980 to 2008. We estimate long-run demand elasticities with regard to real disposable income and real residential price of natural gas using the autoregressive distributed lag (ARDL) bounds testing procedure (Pesaran and Shin, 1999). The robustness of the long-run estimates is checked by additionally considering the FMOLS and DOLS estimators. By employing an error correction framework we also obtain estimates for the speeds of adjustment to long-run equilibrium and short-run elasticities for the individual countries. The effect of weather conditions on natural gas demand in a given year is accounted for by including heating degree days as a control variable. On average, the long-run elasticities are 0.94 with regard to income, –0.51 with regard to price and 1.35 with regard to weather. The short-run dynamics assessed by estimation of the error correction models indicate an average adjustment coefficient of –0.58, a short-run income elasticity of 0.45, a short-run price elasticity of –0.24, and a short-run weather elasticity of 0.72. Hence, on average, the short-run elasticities are approximately half in magnitude compared to their long-run counterparts.

Suggested Citation

  • Bernstein, Ronald & Madlener, Reinhard, 2011. "Residential Natural Gas Demand Elasticities in OECD Countries: An ARDL Bounds Testing Approach," FCN Working Papers 15/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    • Handle: RePEc:ris:fcnwpa:2011_015
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    References listed on IDEAS

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    More about this item

    Keywords

    Natural gas demand; Elasticities; ARDL; Bounds testing; OECD countries; Residential;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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