Analyses of asymmetric demand responses to price changes have typically been undertaken within a single-equation framework. We generalize an approach involving decompositions of the price variables by extending its treatment to the case of multiple inter-related demands. The resulting systems approach is applied to the case of energy use in the residential sector of Ontario (Canada), alternately using real and relative prices as explanatory variables. The consequences on some standard properties of demand systems (homogeneity and symmetry) are also investigated. In addition, we outline and implement an approach to testing for the existence of asymmetric demand responses in the context of multiple energy sources. In the data set considered, our results suggest that demands for these energy sources were characterized by asymmetric responses to price changes, even after allowing for inter-fuel substitution.

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International Symposia in Economic Theory and Econometrics

Ryan, D.L. (David L.), & Plourde, A. (2007). A systems approach to modelling asymmetric demand responses to energy price changes. International Symposia in Economic Theory and Econometrics. doi:10.1016/S1571-0386(07)18010-8