Demand elasticities in OECD

Abstract

Four models with different lag structures are used to express final energy demand in OECD from 1960–1982 as a function of real GDP and average energy price. The income and long-run price elasticities are not significantly dependent on the model specification, but the Koyck lag scheme, estimated in its distributed lag form, is found to give the most satisfactory results. The statistical properties of the data together with evidence of trends in the elasticities both suggest that the period of falling real prices prior to 1971 is not comparable to the present period. For the period after 1971, an income elsticity of 1.02 and a long-run price elasticity of -0.37 are obtained.