Long-Run Relation and Short-Run Dynamics in U.S. Energy Demand: Evidence from Panel Data across Energy Sources and User Ends

Long-run relations and short-run dynamics of demand for energy, electricity and natural gas are examined using panel data for 48 U.S. states over 1970-2013 periods across the residential, commercial and industrial sectors. Five noteworthy points are evident: (1) Tests of cointegration, which account for cross-sectional dependency, suggest the existence of stable demand functions across the three sectors. (2) Estimates of price and income elasticities have the correct signs and are significant across most sectors. (3) Energy demand is both price and income inelastic in the long-run across different types of energy and end-use sectors. (4) There is no evidence of substitutability or complementarity between electricity and natural gas. (5) There is no evidence that the magnitude of price elasticity varies by extend of the market. And, (6) the estimated error-correction model suggests long-run causality from explanatory variables to energy. This finding is robust across energy types and end-use sectors.