Non-linear technological progress and the substitutability of energy for capital: An application using the translog cost function.

This paper analyses the production process of three industries over three separate time periods using datasets taken form Berndt and Wood (1975, 1979), Hunt (1984a, 1986) and Norsworthy and Harper (1981). In their initial paper Berndt and Wood failed to explore the alternative options available to them to represent technological progress, a deficiency noted by Hunt (1986) who tested for alternative representations of technology (inter alia) using the Berndt and Wood data. This paper extends this line of reasoning/research by allowing technological progress to take more flexible non-linear forms using a polynomial deterministic trend model. The results reveal that ‘non-linear trend' models are generally preferred to ‘linear trend' or ‘no trend' models hence raising a question over the validity of assumptions used in much previous empirical research. Further the results reveal that the different assumptions lead to different results for the energy-capital elasticity of substitution.Translog, non-linear technological progress, elasticity of substitution

Oil price shocks and stock market returns: New evidence from the United States and China

This study examines the time-varying correlations between oil prices shocks of different types (supply-side, aggregate demand and oil-market specific demand as per Kilian (2009) who highlighted that "Not all oil shocks are alike") and stock market returns, using a Scalar-BEKK model. For this study we consider the aggregate stock market indices from two countries, China and the US, reflecting the most important developing and developed financial markets in the world. In addition to the whole market, we also consider correlations from key selected industrial sectors, namely Metals & Mining, Oil & Gas, Retail, Technology and Banking. The sample period runs from 1995 until 2013. We highlight several key points: (i) correlations between oil price shocks and stock returns are clearly and systematically time-varying; (ii) oil shocks of different types show substantial variation in their impact upon stock market returns; (iii) these effects differ widely across industrial sectors; and finally (iv) China is seemingly more resilient to oil price shocks than the US

Non-linear technological progress and the substitutability of energy for capital: an application using the translog cost function.

This paper analyses the production process of four industries over four separate time periods using datasets taken form Berndt and Wood (1975, 1979), Hunt (1984a, 1986), Norsworthy and Harper (1981) and Jorgensen and Stiroh (2000). In their initial paper Berndt and Wood failed to explore the alternative options available to them to represent technological progress, a deficiency noted by Hunt (1986) who tested for alternative representations of technology (inter alia) using the Berndt and Wood data. This paper extends this line of reasoning/research by allowing technological progress to take more flexible non-linear forms using both deterministic and stochastic trend models. The results reveal that ‘non-linear trend’ models are generally preferred to ‘linear trend’ or ‘no trend’ models hence raising a question over the validity of assumptions used in much previous empirical research. Further the results reveal that the different assumptions lead to different results for the energy-capital elasticity of substitution.Translog, energy-capital substitution, productivity

UKERC Review of evidence for the rebound effect: Technical report 3: Elasticity of substitution studies

This Working Paper forms part of the TPA’s assessment of evidence for a rebound effect from improved energy efficiency. Technical Report 3 focuses upon empirical estimates of the elasticity of substitution between energy and capital. This parameter has been identified as a key determinant of the likely magnitude of the rebound effect in different sectors. The report clarifies the meaning and importance of this parameter, summarises and compares empirical estimates of this parameter, evaluates the reasons that have been proposed for the differing results, discusses whether a consensus has been reached to whether energy and capital can be considered as ‘substitutes’ or ‘complements’ and draws some implications for the rebound effect

Quantifying the Impact of Exogenous Non-Economic Factors on UK Transport Oil Demand

This paper attempts to quantify the impact of exogenous non-economic factors on UK transport oil demand (in addition to income, price, and fuel efficiency) by estimating the demand relationship for oil transport for 1960-2007 using the Structural Time Series Model. From this, the relative impact on UK transport oil demand from income, price, and efficiency are quantified. Moreover, the impact of the non-economic factors is also quantified, based on the premise that the estimated stochastic trend represents behavioural responses to changes in socio-economic factors and changes in lifestyles and attitudes. The estimated elasticities for income, price and efficiency are 0.6, -0.1, and -0.3 respectively and it is shown that for efficiency and price the overall contribution is relatively small, whereas the contribution from income and non-economic factors is relatively large. This has important implications for policy makers keen to reduce transport oil consumption and associated emissions, but not willing to reduce the trend rate of economic growth. Taxes and improved efficiency only have a limited impact; hence, a major thrust of policy should perhaps be on educating and informing consumers to persuade them to change their lifestyle and attitudes and thus reduce their consumption through the non-economic instruments route.Transport oil demand; Structural Time Series Model, STSM; Underlying Energy Demand Trend, UEDT; Exogenous Non-Economic Factors, ExNEF.

To what extent can non-price/income instruments influence the demand for energy?

The demand for energy is not simply a function of price and income, but can be shown also to be a function also of the underlying energy demand trend (UEDT). The UEDT captures behavioural responses to non-fiscal instruments, including technological change, but also encapsulating attitudinal responses/changes in demand that might result for instance from increased public awareness of how environmentally damaging energy use can be, hence reflecting underlying consumer preferences. This study estimates a longitudinal econometric model for the aggregate demand functions of a sample of 17 OECD countries for the period 1960-2005. This approach to modelling will enable UEDT’s to be observed for each of the countries, as well as the normal price and income elasticities. The model results will provide an indication of the extent to which price/income based instruments can be used to reduce the demand for energy, as well as indicating the extent to which consumers have responded to non-price/income instruments.OECD Aggregate energy demand; Asymmetry; Exogenous non-economic factors.

Transportation Oil Demand Consumer Preferences and Asymmetric Price Responses: Some UK Evidence

The aim of this paper is to (i) establish the role of asymmetric price decompositions in UK road transportation fuel demand, (ii) make explicit the impact of the underlying energy demand trend and (iii) disaggregate the estimation for gasoline and diesel demand as separate commodities. Dynamic UK transport oil demand functions are estimated using the Seemingly Unrelated Structural Time Series Model with decomposed prices to allow for asymmetric price responses. The importance of starting with a flexible modelling approach that incorporates both an underlying demand trend and asymmetric price response function is highlighted. Furthermore, these features can lead to different insights and policy implications than might arise from a model without them. As an example, a zero elasticity for a price-cut is found (for both gasoline and diesel) implying that price reductions do not induce demand for road transportation fuel in the UK. The paper illustrates the importance of joint modelling of gasoline and diesel demand incorporating both asymmetric price responses and stochastic underlying energy demand trends.Diesel; Asymmetry; Price; Underlying Energy Demand Trend (UEDT).

Food Superstores, Food Deserts and Traffic Generation in the UK: A Semi-Parametric Regression Approach

This study contributes another route towards explaining and tackling ‘food desert’ effects. It features the estimation of a (semi-parametric) trip attraction model for food superstores in the UK using a composite dataset. The data comprises information from the UK Census of Population, the NOMIS (National Online Manpower Information System) archive and traffic and site-specific data from the TRICS (Trip Rate Information Computer System) databases. The results indicate that traffic to a given food superstore, ceteris paribus, increases with household car ownership, store parking provision, site size (floor space), and distance to the nearest competitor. Furthermore, increases in public transport provision are shown to be associated with increasing car trips. This latter effect is discussed in the light of planning policy for development control purposes and a role linked to the reinforcement of ‘food deserts’. The results also reveal activity-specific household economies of scope and scale. It is suggested how these may also further perpetuate unsustainable development and ‘food desert’ characteristics.Traffic Generation, Food Superstores, Food Deserts, Activity Based Travel, Sustainable Development, Modelling

Asymmetric Price Responses and the Underlying Energy Demand Trend: Are they Substitutes or Complements? Evidence from Modelling OECD Aggregate Energy Demand

A number of energy demand studies have considered the importance of modelling Asymmetric Price Responses (APR), for example, the often-cited work of Gately and Huntington (2002). Griffin and Schulman (2005) questioned the asymmetric approach arguing that this is only capturing energy saving technical progress. Huntington (2006), however, showed that for whole economy aggregate energy and oil demand there is a role statistically for both APR and exogenous energy saving technical change. In a separate strand of the literature the idea of the Underlying Energy Demand Trend (UEDT) has been developed, see for example Hunt et al. (2003a and 2003b) and Dimitropoulos et al. (2005). They argue that it is important, in time series energy demand models, to allow for stochastic trends (or UEDTs) based upon the structural time series/dynamic regression methodology recommended by Harvey (1989, 1997). This paper attempts to bring these strands of the literature together by conducting tests for the UEDT and APR in energy demand models within both a panel context (consistent with the Huntington, 2006 approach) and the structural time series modelling framework. A set of tests across a range of specifications using time-series and panel data are therefore undertaken in order to ascertain whether energy saving technical change (or the more general UEDT) and APR are substitutes for each other when modelling energy demand or whether they are actually picking up different influences and are therefore complements. Using annual whole economy data for 17 OECD countries over the period 1960 – 2004 the results suggest that in general the UEDT and ARP are complementary estimation methodologies when modelling aggregate energy demand. It is argued therefore that energy demand modellers should not assume at the outset that one method is superior to the other. Moreover, wherever possible, a general model (be it in a time series or panel context) that includes a ‘non linear UEDT’ and APR should be initially estimated, and only if accepted by the data should symmetry and/or a more restrictive UEDT be imposed.Energy Demand, OECD, Asymmetric Price Responses, Underlying Energy Demand Trend.