Estimation of Short-Run and Long-Run Elasticities of Energy Demand From Panel Data Using Shrinkage Estimators

This paper discusses the problem of obtaining short-run and long-run elasticities of energy demand for each of forty-nine states in the United States using data for twenty-one years. Estimation using the time-series data by each state gave several wrong signs for the coefficients. Estimation using pooled data was not valid because the hypothesis of homogeneity of the coefficients was rejected. Shrinkage estimators gave more reasonable results. The paper presents, in a unified framework, the classical, empirical Bayes, and Bayes approaches for deriving these estimators. Coauthors are Robert P. Trost, Hongyi Li, and Frederick Joutz.

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