Short- and long-run electricity demand elasticities at the subsectoral level: A cointegration analysis for German manufacturing industries

We estimate electricity demand elasticities for eight subsectors of the German manufacturing industry using annual data from EU-KLEMS and the International Energy Agency for 1970–2007. The subsectoral approach allows to retain additional information otherwise blurred by aggregation and to benefit from lower intra-sectoral heterogeneity. By employing a cointegrated VAR approach and accounting for structural breaks, we find long-run relationships for five of the eight subsectors studied. Short-run elasticities are estimated using single-equation error correction modeling. Granger causality tests and an impulse response analysis provide further insights into the relationships and dynamics of the variables, confirming the usefulness of the subsectoral approach adopted.