Seasonality, Cointegration, and Forecasting UK Residential Energy Demand

Much of the short‐run movement in energy demand in the UK is seasonal, and the contribution of long‐run factors to short‐run forecasts is slight. Nevertheless, using a variety of techniques, including a recently developed estimation procedure that is applicable irrespective of the orders of integration of the data, we obtain a long‐run income elasticity of demand of about one third, and we are unable to reject a zero price elasticity. An econometric model is shown to provide superior short‐run forecasts to well‐known seasonal time series models ex post , but is inferior to Box‐Jenkins SARMA models when the determinants themselves have to be forecast. However, the relatively short data sample and small number of forecasts suggest caution in generalising these results.