Estimates Of Demand Elasticities Research Articles

Institutional Corporate Bond Demand

We compile a rich dataset that links institutional investors' position level holdings with corporate bond characteristics and estimate demand elasticities with respect to critical sources of risk. Persistence in institutions' holdings provide us with an instrument to isolate exogenous movements in prices. We find significant heterogeneity in demand elasticities across the main players in the corporate bond market, namely insurers, pension funds, and mutual funds. Long-term investors are sensitive to interest rate movements and supply liquidity, whereas mutual funds, with shorter investment horizon and benchmark constraints, demand liquidity. Price impact increased post-crisis for all institutions and has remained higher than the pre-crisis levels, signaling a general decline in bond market liquidity due perhaps to regulatory changes in the corporate bond market. Price impact jumped up significantly during COVID-19, perhaps suggesting a reluctance of dealers to intermediate in the market place, and illustrating that firms' funding opportunities are highly sensitive to investors' latent demand shocks. Our results have wide ranging implications for corporate bond pricing due to heterogeneity in investors and investment mandates, and are hard to reconcile with standard, representative agent based models.

Understanding the Estimation of Oil Demand and Oil Supply Elasticities

This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the dominant driver of the real price of oil. The focus of this paper is not only on correcting some misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

Understanding the Estimation of Oil Demand and Oil Supply Elasticities

This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the dominant driver of the real price of oil. The focus of this paper is not only on correcting some misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

휘발유 및 경유의 수요탄력성 추정에 관한 연구: 수요체계적 접근

석유자원은 현대인의 생활에 필수불가결한 자원이다. 그러나 석유자원에 대한 의존성은 기후변화라는 범지구적인 문제를 야기했으며, 이에 전 세계적으로 기후변화를 완화시키기 위한 정책적 관심이 급증하고 있다. 따라서 본 연구에서는 휘발유와 경유의 수요탄력성을 추정하기 위해 2005년부터 2015년까지의 가계동향조사 데이터를 소비체계적 접근을 통해 분석했다. 가계의 소비지출은 소득과 재화·서비스 가격에 영향을 받으며, 수요체계적인 접근을 통해 가계의 소비지출에 대한 분석은 정부의 정책결정 과정에 있어 기초적인 참고자료가 될 수 있다. 실증분석 결과 휘발유와 경유의 소득탄력성은 각각 0.958, 0.880으로 나타나 모두 양(+)의 값을 가지는 정상재로 나타났으며, 소득에 대해 비탄력적인 것을 알 수 있었다. 두 재화의 자기가격탄력성 또한 모두 음(-)의 값을 가지는 것으로 나타났으며, 휘발유의 자기가격탄력성은 절댓값이 1보다 작게나와 자기가격에 대해 비탄력적인 재화로 나타났고, 경유의 경우 자기가격탄력성의 절댓값이 1보다 크게나와 탄력적인 재화로 나타났다. 이러한 결과는 경유가 휘발유에 비해 가격에 더 민감하게 반응함을 의미한다.Oil resources are very necessary goods for modern life. But high dependency of oil resources cause various problems. Especially environmental problem that global warming caused is becoming a major concern. In this paper, using micro data from 2005 to 2015 rounds of the household income and expenditure survey data, we estimate demand elasticity for transport fuel by demand system approach. Changes in Income and price of goods impact on expenditure of household and analysis of expenditure of household by demand system could be a basis of policy making process. Our estimates show that income elasticity for gasoline and diesel fuel are 0.957528, 0.880147, respectively. The finding show that gasoline and diesel fuel are normal goods and inelastic for income changes. We also find that, both of own-price elasticity are negative. As our finding, demand for gasoline is inelastic for own-price change and demand for diesel fuel has opposite result to gasoline. This founding indicates demand for diesel fuel is more sensitive to own-price change than gasoline.

Examining Demand Elasticities in the U.S. Differentiated Yogurt Market

This article applies the Quadratic Almost Ideal Demand system (QUAIDS) model to households’ weekly purchases of yogurt augmented with household characteristics to analyze consumer choices and estimate demand elasticities in the U.S. differentiated yogurt market after the introduction of Chobani brand in 2005. Results show that households with a college degree are more likely to purchase Chobani and Dannon brands rather than Yoplait and private labels. Except for Dannon, demand is price elastic, while the new brand of Chobani has a higher elastic demand compared to the Yoplait brand. Branded yogurts are expenditure elastic with the highest magnitude for Chobani among brands.

Estimating the long-run metro demand elasticities for Lisbon: A time-varying approach

This paper provides the first estimation of long-run demand elasticities for Lisbon’s metro, covering the lifetime of the metro’s operation from 1960 until 2017. The findings indicate that the metro patronage is relatively more responsive to changes in the fare than to changes in service level, with long-run elasticity values ranging between −0.45 to −0.84 for metro travel card and between 0.45 and 0.50 for service level. This implies that fare policies are likely to be more effective at influencing patronage than supply policies. We also find a substitution effect between the metro and private motorized transport, but not between the metro and the urban bus/tram system. There is also evidence of a strong relation between wage and metro demand for poorer individuals, which we interpret as an indication of greater mobility constrains faced by these individuals for whom an increase in income level only permits more mobility by public transport. Finally, we also implement a recursive time-varying method to investigate the presence of structural breaks resulting from the very large increase in metro prices and the strong reduction in service level during the period of economic crisis and public finance imbalances that followed the financial and economic crisis of 2008. During this period, metro demand elasticities changed, especially for the metro fare, suggesting it became more elastic.

Estimation of rural households’ demand for selected staple foods in Enugu State

Estimation of household food demand patterns and elasticity is often conceived as an important prerequisite for designing, predicting and analysing agricultural policy impacts. Based on this fact, this study sets out to estimate the food demand of rural households in the study area with a view to identifying its determinants and responsiveness to price and household food expenditure. The study employed a multi-stage sampling technique in the selection 254 rural households in Enugu state and the primary data collected were analysed using Descriptive statistics and Quadratic Almost Ideal Demand System (QUAIDS) model. The result of the descriptive statistics showed that the mean age, household size, and years of education of the sampled rural households were 49.7±13.30, 7.0 ± 3.02, and 13.96±3.96. The result of the QUAIDS model revealed that all the expenditure elasticity for the selected staple food items were positive and hence, regarded as normal goods and In terms of magnitude, all the staple food items except rice and yam have expenditure elasticity less than one and are therefore, regarded as necessities. Own price elasticity were all negative as expected in both uncompensated and compensated price elasticity estimates. The Marshallian cross price elasticity estimates also revealed that almost all the selected staple food items have positive cross-price elasticity values indicating that they are net substitutes while the Hicksian/compensated cross price elasticity revealed that majority of the selected staple food items have negative cross-price elasticity values indicating that they are complements. However, the study further revealed that price, total food expenditure, sex, age, marital status, years of education, household size and household head income were the key determinants of the rural household demand for the selected staple food items in the study area. Based on the foregoing, the result of this study should inform the design of food security related policies aimed at improving the nutritional status of the poor and vulnerable households in the country.Keywords: QUAIDS, Food Demand, Elasticity, Households

Pola Konsumsi dan Permintaan Pangan Sumber Protein Hewani di Provinsi Nusa Tenggara Barat dan Nusa Tenggara Timur

<p>Animal protein intake determines food consumption quality for healthy, active, and productive life. Objectives of this study were to analyze consumption patterns and demand for animal protein sources in cattle producing centers in West Nusa Tenggara (NTB) and East Nusa Tenggara (NTT) provinces. This study employed 2014 Susenas data. Animal protein consumption levels in both provinces were below the recommended daily nutritional adequacy. Beef consumption participation level was very low (6.06%). Demand elasticities for animal products in rural areas were higher than those in urban areas, except for fresh fish. Income elasticities in urban areas were higher in terms of beef, chicken, milk, fresh fish and preserved fish. Income elasticities of meats and eggs in rural areas were higher for meats and eggs. Beef per capita consumption in 2020 is estimated to be 0.44 kg and in 2025 will reach 0.51 kg. Total demand for beef are projected to be 4,720 kg and 5,734 kg in 2020 and 2025, respectively. To achieve self-sufficiency in animal protein, in addition to beef self-sufficiency program currently implemented, it is necessary to increase other livestock products such as poultry with protein content equal to beef but with cheaper prices.</p><p> </p><p>Abstrak</p><p>Asupan protein hewani menentukan kualitas konsumsi makanan yang diperlukan untuk mendukung hidup sehat, aktif, dan produktif. Penelitian ini bertujuan untuk menganalisis pola konsumsi dan permintaan pangan sumber protein hewani di daerah sentra produsen sapi di provinsi NTB dan NTT. Model AIDS digunakan untuk mengestimasi elastisitas permintaan pangan dan persamaan linear untuk mengestimasi proyeksi permintaan pangan hewani tahun 2020-2025. Data yang digunakan adalah data Susenas tahun 2014 dari BPS. Hasil penelitian menunjukkan bahwa konsumsi pangan sumber protein hewani masyarakat di dua provinsi di Nusa Tenggara belum memenuhi angka kecukupan gizi yang dianjurkan.Tingkat partisipasi konsumsi pangan sumber protein hewani untuk daging sapi cukup rendah, yaitu sebesar 6,06 %. Nilai elastisitas permintaan pangan di pedesaan lebih tinggi dibandingkan di perkotaan untuk seluruh komoditas kecuali ikan segar. Elastisitas pendapatan masyarakat perkotaan lebih tinggi untuk daging sapi, daging ayam, susu, ikan segar, dan ikan awetan, sedangkan bagi masyarakat pedesaan untuk daging lainnya dan telur lebih besar. Hasil proyeksi menunjukkan permintaan daging sapi dalam periode tahun 2020-2025 terus meningkat. Konsumsi daging sapi per kapita di kedua provinsi tersebut tahun 2020 diperkirakan sebesar 0,44 kg/tahun dan tahun 2025 mencapai 0,51 kg/tahun, sehingga permintaan daging sapi tahun 2020 dan 2025 diproyeksikan masing-masing sebesar 4.720 kg dan 5.734 kg. Dalam rangka mewujudkan upaya swasembada protein hewani, selain program pencapaian swasembada daging sapi yang sudah berjalan, sebaiknya perlu diupayakan peningkatan komoditas pangan hasil ternak lainnya seperti unggas yang memiliki kandungan protein yang tidak kalah dengan daging sapi dengan harga yang lebih murah.</p>

Cross‐country study on food consumption patterns and rice away from home: The case of Bangladesh

AbstractAs with most Asian countries, rice dominates Bangladesh in terms of food production and consumption. However, with sustained increase in income, persistent commendable GDP growth, urbanization, and significant reduction in poverty, people tend to consume more diversified food, ready to eat food, and food away from home. The findings from this study, based on data from Bangladesh Bureau of Statistics, lend support to this consumption propensity and indicate that with time rice is becoming cheaper and animal and plant foods are getting dearer and expensive. This implies that the national agricultural policy of Bangladesh must recast to match the future food demand of people and to meet the increasing challenge of reversing the rising prices of non‐staples including animal foods. Nested studies on “rice and food away from home” and estimation of demand elasticity and formulation of food demand equations to determine dietary choices and to find nutritional implications of movements in relative food prices and other exogenous variables, to this effect, will have important policy implications for Bangladesh agriculture–food and health paradigm.

A Meta-Analysis of the Price and Income Elasticities of Food Demand

Food demand elasticities are crucial parameters in the calibration of simulation models used to assess the impacts of political reforms or to analyse long-term projections, notably in agricultural sectors. Numerous estimates of these parameters are now available in the economic literature. The main objectives of this work are twofold: we seek first to identify general patterns characterizing the demand elasticities of food products and second to identify the main sources of heterogeneity between the elasticity estimates available in the literature. To achieve these objectives, we conduct a broad literature review of food demand elasticity estimates and perform a meta-regression analysis. Our results reveal the important impacts of income levels on income and price elasticities both at the country (gross domestic product-GDP) and household levels: the higher the income is, the lower the level of elasticities. Food demand responses to changes in income and prices appear to follow different patterns depending on the global regions involved apart from any income level consideration. From a methodological viewpoint, the functional forms used to represent food demand are found to significantly affect elasticity estimates. This result sheds light on the importance of the specification of demand functions, and particularly of their flexibility, in simulation models.

Estimation of Demand Elasticity for Food Commodities in Java Island

Food availability is a development priority. Along with the increasing population growth, safe and nutritious food is rising. Analysis of food consumption patterns is needed to estimate the demand for agricultural products. This study attempts to analyze consumption patterns and food demand for several commodities in Java by using the 2010-2017 National Socio-Economic Survey data collected by Statistics Indonesia. Results of this study are: 1) the demand for quantity of rice is not elastic to income; (2) the demand for quantity of fresh fish, shrimp, beef and chicken meat is elastic to income; (3) the budget elasticity of fresh fish, shrimp, beef and chicken meat is also large, which means that households will increase the quantity and budget for these three commodities; (4) quantity and budget elasticity in rural are generally greater than urban; (5) in urban areas, budget elasticity is greater than quantity elasticity for all commodities, while in rural, budget elasticity is smaller than quantity elasticity, except for sugar, fresh fish and shrimp; (6) there has been a shift in the proportion of food expenditure on Java, e.g. the proportion of expenditures for grains decreases and the proportion of expenditures for prepared food and beverages increases.

Analysis of the Estimation of Demand Elasticity for Non-Alcoholic Beverage

1990년대 이후 진행된 가계소비 형태의 변화는 비주류 음료(커피, 차, 주스·기타음료)에도 큰 영향을 주었다. 2000년대 이후, 비주류 음료 간 상호관계를 분석하기 위해 본 연구에서는 준이상 수요체계모형을 통한 4개의 수요방정식을 설정하고 표면무관회귀방법으로 추정하였다. 그 결과, 커피, 차, 주스·기타음료의 소득탄력성은 각각 0.3363, 0.2494, 0.4618이며, 자기가격탄력성은 모두 음수가 산출되었다. 이는 비주류 음료가 정상재이면서 필수재임을 의미하고, 소비자 이론에도 부합한다. 본 연구에서는 차와 주스·기타음료의 자기가격탄력성의 절댓값이 1을 초과하는 것을 통해 자기가격의 증가로 인한 대체가 매우 탄력적으로 이뤄지고 있음을 확인했다. 또한, 비주류 음료 간 교차탄력성의 추정결과에 따르면 차와 주스·기타음료는 서로 보완하는 관계를 가지고 있었지만, 커피는 차와 주스·기타음료를 대체하는 상품으로 산출되었다. 따라서 차 가격의 증가는 커피의 소비를 증가시키지만 차와 주스·기타음료의 소비는 감소시켰다. 이러한 결과는 비주류 음료의 특성을 제시할 뿐만 아니라 세부 품목에서 발생하는 경제적 충격이 총수요를 얼마나 변동시키는지에 관한 미시적 기초가 된다.Changes in household consumption patterns since the 1990s have had a major impact on the non-alcoholic beverage (coffee, tea, juice·other beverages). The study of the increase of consumption expenditure and the change of expenditure structure is important for judging consumer s desire as well as the level of dietary. In order to analyze the interrelation between non-alcoholic beverage since 2000, this study set four demand equations through linear approximate almost ideal demand system and estimated by seemingly unrelated regression. As a result, the income elasticity was calculated as 0.3363, 0.2494, and 0.4618, respectively and the self-price elasticity was all negative. This means that non-alcoholic beverage was both normal and mandatory for household expenditure items. Also, according to the results of cross elasticity estimated, tea and juice·other beverages complement each other, but coffee is considered as a substitute for tea and juice·other beverages. This is a micro-base of how the economic shock of a detailed item changes aggregate demand

Import Demand Elasticities Based on Quantity Data: Theory, Evidence and Implications for the Gains from Trade

Correct estimates of import demand elasticities are essential for measuring the gains from trade and predicting the impact of trade policies. We show that estimates of import demand elasticities hinge critically on whether they are derived using trade quantities or trade values, and this difference is due to properties of the estimators. Using partial identification methods, we show theoretically that the upper bound on the set of plausible estimates is lower when using traded quantities, compared to the standard approach using trade values. Our theoretical predictions are confirmed using detailed product-level data on U.S. imports for the years 1993--2006. Our proposed method using traded quantities leads to smaller point estimates of the import demand elasticities for many goods and imply larger gains from trade compared to estimates based on trade values.

Export Demand Elasticity Estimation for U.S. Cotton

U.S. cotton exports have been characterized by large fluctuations in the last two decades. However, the latest available elasticity estimates of U.S. cotton exports are from 1982. New and more precise estimates of export demand elasticities for U.S. cotton are necessary to forecast future U.S. cotton exports and accurately analyze potential political policy and market changes. This study provides updated estimates of the elasticity of foreign demand for U.S. cotton in selected major cotton importing countries using an Armington framework for the years 1978 to 2017. Additionally, this study examines the evolution of the export demand elasticities over time in a dynamic framework of time-varying parameters (TVP) based on the Kalman filter methodology. Our results indicate that short-run price elasticities of foreign demand for U.S. cotton are price inelastic for major cotton importing countries, except for Pakistan. Countries with lower export demand elasticities are associated with relatively large U.S. cotton market shares for these countries. The import demand elasticity for U.S. cotton in recent years is becoming less elastic, implying that cotton import demand in major importing countries has become less price sensitive than it was historically, and the U.S. has competitive advantages in these major cotton importing countries over other suppliers.

U.S. Demand for Citrus Beverages

In 2017, the US was the second largest citrus producer with 711,000 bearing acreages and a 7.77 million MT production. Despite the US annual orange juice production decreased to 215,000 MT in 2017, per-capita domestic consumption increased to or remained above 41.75 lbs. With record low production levels and record high import levels over the last 17 years, it is important to obtain recent estimates of the US household demand for citrus beverages. This study uses the Almost Ideal Demand System (AIDS) and monthly data for the period of 2004-2018 from The Nielsen Company to estimate demand elasticities for various citrus beverages. Our Marshallian own-price elasticity estimates obtained the expected negative signs and were greater than one in absolute terms indicating that the US demands were price elastic. The Hicksian cross-price elasticity estimates indicated both complementary relationships and substitutability between the selected citrus beverages, while the expenditure elasticities indicated mostly normal goods. The study’s findings contribute with a better understanding of the citrus beverages market structure and provide insight into the consumer demand behavior. The estimated elasticities are useful for analyzing the US consumers’ responsiveness to price changes and for providing insight in agricultural marketing and policy related decisions.

Predicting the changes in the structure of food demand in China

AbstractA complete demand system is estimated separately for urban and rural residents using a two‐stage almost ideal demand system–quadratic almost ideal demand system model and pooled provincial and time‐series data from 2000 to 2012. The estimated demand elasticities with respect to income and demographic variables are then used to predict the changes in the structure of food demand in China for the year 2030. Results of this study suggest that, as per capita incomes grow further while both urbanization and population aging continue their upward trends, the shares of expenditures on foods away from home are expected to rise while the shares of spending on foods at home would decline, and that at‐home food budget shares of grains are expected to continue decreasing whereas at‐home food budget shares of foods with animal origins and fruits would be on the rise. Thus, food security in China has been transformed into feed grain security.

Modelling Sri Lankan consumption patterns using error corrected LA-AIDS

Static-demand systems used in empirical studies are based on the assumption that consumers immediately and fully adjust to a new equilibrium when either incomes or prices change. In reality, consumers are unlikely to have adjusted to equilibrium in each time period and the assumption of instantaneous adjustments by consumers is potentially incorrect. The dynamic modelling approach allows for intertemporal rationality of consumer behaviour by explicitly considering the mechanism underlying the short-run adjustment process. This study, while considering the traditional static Almost Ideal Demand System (AIDS), in addition, considers two dynamic versions of the AIDS to model the dynamic behaviour of Sri Lankan consumers in consuming eight broad commodity groups using data during the period 1963–2016. The estimated results indicate that all commodities have price inelastic demand in both the short and long run. The differences between short- and long-run demand elasticities indicate the need to adopt a dynamic approach in estimating demand elasticities, because the income and price elasticities are key inputs for policy analysis in economy-wide modelling.

The impact of prices on alcoholic beverage consumption in Chile.

Introduction and objectiveChile is among the countries with the highest alcohol consumption per capita in Latin America, but little has been done in the way of public policy and policy research to overcome this problem. The objective of the present study is to estimate demand elasticities (own-price, cross-price, expenditure and quality) for three groups of alcoholic beverages in Chile: spirits, wines, and beers.Data and methodsThe study uses data from the VII Encuesta de Presupuestos Familiares (Family Budget Survey) 2011–2012 conducted by the National Institute of Statistics. Because of problems with the quality of the measurement units, hot-deck imputation method was used with the alcohol purchases that presented problems. To estimate the demand elasticities, the Almost Ideal Demand System (AIDS) method proposed by Deaton was used. Quality decisions were estimated for each beverage separately using an equation proposed by Deaton in the three-step AIDS.ResultsThe estimated elasticities were more inelastic for spirits (-0.14, P<0.01), followed by wines (-0.77, P<0.01) and beers (-0.93, P<0.01). Spirits reported less sensitivity to changes in the total budget, while wines reported the most sensitivity to changes in the total budget (expenditure elasticity). Wines also reported the most sensitivity related to quality for changes in the total budget (0,20, meaning that a 10% increase in a household’s total expenditure increases the “quality” of purchased wines by 2%).ConclusionsOwn-price elasticities reported for spirits, wines and beers are consistently negative, and inelastic, in line with international evidence. Although own-price elasticities for spirits is more inelastic than found in most studies, its quality-elasticity is more positive and greater. This could be explained by the greater price dispersion of spirits, as well as spirits (and wine) being consumed more than beers in Chile. This in turn may be because consumers have the option of switching to cheaper, Chilean-produced spirits such as pisco and wines when prices rise. The existence of these relatively broad quality-elasticities points to the need for a change in the alcohol tax structure from the current ad-valorem tax to a specific tax that could reduce price dispersion and curb total consumption.

Are Firm-Level Idiosyncratic Shocks Important for U.S. Aggregate Volatility?

This paper quantitatively assesses whether firm-specific shocks can drive the U.S. business cycle. Firm-specific shocks to the largest firms can directly contribute to aggregate fluctuations whenever the firm size distribution is fat-tailed giving rise to the granular hypothesis. I use a novel, comprehensive data set compiled from administrative sources that contains the universe of firms and trade transactions, and find that the granular hypothesis accounts at most for 16 percent of the variation in aggregate sales growth. This is about half of that found by previous studies that imposed Gibrat’s law where all firms are equally volatile regardless of their size. Using the full distribution of growth rates among U.S. firms, I find robust evidence of a negative relationship between firm-level volatility and size, i.e. the size-variance relationship. The largest firms (whose shocks drive granularity) are the least volatile under the size-variance relationship, thus their influence on aggregates is mitigated. I show that by taking this relationship into account the effect of firm-specific shocks on observed macroeconomic volatility is substantially reduced. I then investigate several plausible mechanisms that could explain the negative sizevariance relationship. After empirically ruling out some of them, I suggest a “market power” channel in which large firms face smaller price elasticities and therefore respond less to a givensized productivity shock than small firms do. I provide direct evidence for this mechanism by estimating demand elasticities among U.S. manufactures. Lastly, I construct an analytically tractable framework that is consistent with several empirical regularities related to firm size.

Dynamic multilevel modelling of industrial energy demand in Europe

Previous studies of industry level energy demand have not accounted for the hierarchical nesting of industries within a system that also adequately allows for country specific determinants of energy demand. The principal contribution of this paper is therefore to analyse energy demand for European industries over the period 1995–2009 using a dynamic multilevel model that accounts for this hierarchical data structure. Among other things, we find, firstly, that our dynamic multilevel model suggests that if industry income and the industry energy price increase by 10%, long run energy demand will increase by 8.1% and fall by 6.8%, respectively. Secondly, we find that the corresponding long run income and price elasticities are substantially larger in a standard dynamic model of industry level energy demand which does not account for the hierarchical data structure. Our results therefore suggest that not accounting for the hierarchical data structure results in unreliable estimates of energy demand elasticities. From a policy perspective we argue that it is imperative that future industry level energy demand studies account for the hierarchical structure of the data. This is to prevent energy policy making being based on industry level evidence that substantially inflates the responsiveness of long run energy demand to income and price changes.