Open AccessArticle
Modeling of Electricity Demand for Azerbaijan: Time-Varying Coefficient Cointegration Approach
by
Jeyhun I. Mikayilov 1,2,3, Fakhri J. Hasanov 1,4,5,*, Carlo A. Bollino 1,6 and Ceyhun Mahmudlu 7
1
King Abdullah Petroleum Studies and Research Center, PO Box 88550, Riyadh 11672, Saudi Arabia
2
Department of Statistics, Azerbaijan State University of Economics (UNEC), Istiqlaliyyat Str. 6, Baku AZ1141, Azerbaijan
3
Institute for Scientific Research on Economic Reforms, 88a, Hasan Bey Zardabi Avenue, Baku AZ1011, Azerbaijan
4
Research Program on Forecasting, Economics Department, The George Washington University, 2115 G Street, NW, Washington, DC 20052, USA
5
Institute of Control Systems, Azerbaijan National Academy of Sciences, B. Vahabzade Street 9, Baku AZ1141, Azerbaijan
6
Department of Economics, University of Perugia, Via Pascoli 20, 06123 Perugia, Italy
7
Department of International Relations, Baku Engineering University, Hasan Aliyev 120, Khirdalan AZ0101, Azerbaijan
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Abstract
Recent literature has shown that electricity demand elasticities may not be constant over time and this has investigated using time-varying estimation methods. As accurate modeling of electricity demand is very important in Azerbaijan, which is a transitional country facing significant change in its
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Recent literature has shown that electricity demand elasticities may not be constant over time and this has investigated using time-varying estimation methods. As accurate modeling of electricity demand is very important in Azerbaijan, which is a transitional country facing significant change in its economic outlook, we analyze whether the response of electricity demand to income and price is varying over time in this economy. We employed the Time-Varying Coefficient cointegration approach, a cutting-edge time-varying estimation method. We find evidence that income elasticity demonstrates sizeable variation for the period of investigation ranging from 0.48% to 0.56%. The study has some useful policy implications related to the income and price aspects of the electricity consumption in Azerbaijan.
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