The price response of residential electricity demand in Germany: A dynamic approach
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Date
2018
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Abstract
Due to growing concerns about climate change, policy-makers from all
around the world establish measures, such as carbon taxes, to lower electricity demand
and energy consumption in general. Drawing on household panel data from
the German Residential Energy Consumption Survey (GRECS) that span over nine
years (2006-2014) and employing the sum of regulated price components as an instrument
for the likely endogenous electricity price, we gauge the response of residential
electricity demand to price increases on the basis of the dynamic Blundell-Bond estimator
to account for potential simultaneity and endogeneity problems, as well as
the Nickell bias. Estimating short- and long-run price elasticities of -0.44 and -0.66,
respectively, our results indicate that price measures may be effective in dampening
residential electricity consumption, particularly in the long run. Yet, we also find that
responses to price changes are very heterogeneous across household groups.
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Keywords
dynamic panel methods, instrumental variable approach