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Electricity Consumption, Employment and Real Income in Australia: Evidence

from Multivariate Granger Causality Tests

Article  in  Energy Policy · October 2005

DOI: 10.1016/j.enpol.2003.11.010

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 ARTICLE IN PRESS

Energy Policy 33 (2005) 1109–1116

Electricity consumption, employment and real income in Australia

evidence from multivariate Granger causality tests
Paresh Kumar Narayan, Russell Smyth*
Department of Economics, Monash University, P.O. Box 11E, 3800 Vic., Australia

Abstract

This paper examines the relationship between electricity consumption, employment and real income in Australia within a
cointegration and causality framework. We find that electricity consumption, employment and real income are cointegrated and that
in the long-run employment and real income Granger cause electricity consumption, while in the short run there is weak
unidirectional Granger causality running from income to electricity consumption and from income to employment.
r 2003 Elsevier Ltd. All rights reserved.

Keywords: Electricity consumption; Causality; Bounds test; Cointegration

1. Introduction electricity consumption could lead to a fall in income

The electricity sector is one of Australia’s major
industries. In 1997–1998 it generated $13 billion in sales
to final consumers, which accounted for around 1.6% of
GDP, and employed 32,000 people (ESAA, 1999, ABS
Cat. No. 5206). Table 1 shows growth of electricity
consumption and GDP since the beginning of the 1970s.
The average growth in electricity consumption over this
period has been 4.8%, which has outpaced growth in
real GDP, which has been 3.4%. The purpose of this
paper is twofold. The first objective is to determine
whether there is a stationary, long-run equilibrium
relationship between electricity consumption, employ-
ment and income in Australia. The second is to examine
the temporal causality between these variables. From a
policy viewpoint, the direction of causality between
these variables has important implications (Asafu-
Adjaye, 2000, pp. 616–617; Ghosh, 2002, p. 125). If
unidirectional Granger causality runs from income or
employment to electricity consumption or if there is no
causality in either direction this implies that electricity
conservation policies would not affect economic growth.
However, if unidirectional causality runs from electri-
city consumption to income or employment reducing
*Corresponding author. Tel.: +613-9905-1560; fax: +613-9905-
5476.
E-mail address: russell.smyth@buseco.monash.edu.au (R. Smyth).
and/or employment.
Methodologically, a contribution of the paper is that
we employ the bounds testing approach to cointegra-
tion, within an autoregressive distributed lag (ARDL)
framework suggested by Pesaran and others (Pesaran
and Shin, 1999; Pesaran et al., 2001). With the exception
of Fatai et al. (2001), who use this approach in a study
for New Zealand, the bounds test has not been used in
the energy consumption-growth literature. The bounds
test approach has the advantage that it has better small
sample properties than other popular methods of
cointegration such as the Engle and Granger (1987)
and Johansen and Juselius (1990) test that have been
widely used in the past.
Since the widespread adoption of cointegration
techniques, the evidence on whether there is a long-run
equilibrium relationship between energy consumption
and output is mixed. Some studies have found that
energy consumption and output are cointegrated (see
e.g. Nachane et al., 1988; Masih and Masih, 1996 (for
India, Malaysia and Pakistan)), but many have failed to
find evidence of a long-run equilibrium relationship (see
e.g. Yu and Jin, 1992; Cheng and Lai, 1997). In a
relatively recent study Soytas and Sari (2003) found a
cointegrating vector for only seven out of 16 countries in
a study of the G-7 countries and nine emerging markets
in Asia, Europe and South America. The literature is
equally divided about the relationship between energy
consumption and employment. Some studies support

0301-4215/$ - see front matter r 2003 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2003.11.010
 ARTICLE IN PRESS
1110 P.K. Narayan, R. Smyth / Energy Policy 33 (2005) 1109–1116
Table 1
Growth of electricity generated and real GDP, Australia 1969/70–
1998/99
Growth in electricity Growth in
consumption real GDP
1969/70–1974/75 3.9 3.7
1976/77–1979/80 2.3 2.5
1980/81–1984/85 5.2 3.7
1985/86–1989/90 4.8 3.2
1990/91–1994/95 5.9 3.1
1995/96–1998/99 6.6 4.1
1969/70–1998/99 4.8 3.4
Source: ABS Cat. No. 5206.0, Abbott (2001).
the neutrality thesis (Yu et al., 1988; Erol and Yu, 1989).
Others suggest that unidirectional causality runs from
employment to energy consumption (Murray and Nan,
1992) or that causality runs from energy consumption to
employment (Akarca and Long, 1979).
There is only one study of this sort of which we are
aware for Australia, which is by Fatai et al. (2001a).
This study differs from Fatai et al. (2001a) in two
important respects. First Fatai et al. (2001a) use the
Johansen approach to cointegration, but, unlike their
later paper focusing solely on New Zealand (Fatai et al.,
2001), do not use the bounds test approach. Second,
more importantly, these authors test for Granger
causality between total final energy consumption and
its components and real GDP using a bivariate frame-
work. We use a multivariate cointegration and vector
error-correction approach. A common view in the
literature now is that studies which focus only on two
variable cases may be biased due to the omission of
relevant variables (see e.g. Chang et al., 2001, p. 1046;
Stern, 2000, p. 268). Thus, beginning with Stern (1993),
the most common approach in recent studies is to
employ Granger causality tests using some sort of
multivariate approach. Studies typically include in
addition to energy and output variables one or more
other variables. Recent studies have included a variable
for employment (Chang et al., 2001; Fatai et al., 2001)
or energy prices (Masih and Masih, 1997) or capital and
labour inputs (Stern, 1993).
The paper is set out as follows. The next section
briefly outlines attempts at energy conservation in
Australia. Section three outlines the data and econo-
metric methodology. The results are presented in section
four. The final section concludes.
2. Energy conservation policies in Australia
Since the beginning of the 1990s the electricity
industry has undergone a series of structural reforms.
One of the main objectives of the reforms has been to
implement energy conservation policies designed to
reduce greenhouse emissions and to move towards
generating electricity from renewable resources. In
1997, the Australian Prime Minister described this aim
as follows: ‘‘The possibilities for fuel substitution and
innovation will be enhanced as we continue to accelerate
the process of energy market reform’’ (Howard, 1997).
Prior to the Kyoto conference, the Australian govern-
ment forecast that competition policy reforms to the
energy market would result in greenhouse emission
reductions of 14 million t/annum (Hamilton and Den-
niss, 2001, p. 16). Measures to achieve this have included
mandatory renewable energy targets and some financial
incentives to promote the use of renewable energy
technologies (for an extensive discussion see Bradbrook
and Wawryk, 2002).
To this point, competition policy has not delivered in
this area. In fact greenhouse emissions from the
electricity sector have been increasing throughout the
1990s (Hamilton and Denniss, 2001). In 1998, net
carbon dioxide emissions from electricity generation
were 30% higher than in 1990 (AGO, 2000). The
amount of electricity produced from renewable energy
in Australia is very small. More than 92% of Australia’s
electricity is produced by fossil fuels—coal and natural
gas—and it is expected that fossil fuels will still account
for 90% of electricity generation in 2010 (ESAA, 2002).
To put this in perspective, if Australia’s 8% Kyoto
target was applied equally across all sectors then the
electricity sector’s net emissions could increase by 10.3
million t over the period 1990–2010. However, Hamilton
and Denniss (2001) estimate that competition policy,
through focusing on short-term cost minimization, was
responsible for an increase in greenhouse emissions from
the electricity sector of 11 million t in 1998, the year that
the National Electricity Market was introduced, alone.
The Australian government is putting the onus on the
electricity industry to increase the contribution of
renewable energy sources in Australia’s energy mix
through setting mandatory renewable energy targets. In
response, the Electricity Supply Association of Australia
is urging the Commonwealth and State governments to
implement more effective electricity end-use efficiency
programs. It claims that ‘‘such programs have the
potential to reduce demand in 2010 by as much as
20,000 GW h a year and to cut greenhouse gas emissions
by 20 million t a year—three times the abatement
targeted under the renewable energy scheme’’ (ESAA,
2002).
There has been some attempt to curtail electricity use
at the state level through the implementation of demand
management programs. This has been the main response
of the Victorian government to the problem of shortages
in that state. In 1999/2000, the states of Victoria
and South Australia experienced power outages, due
to excess demand. A general shortage of electricity
 ARTICLE IN PRESS
P.K. Narayan, R. Smyth / Energy Policy 33 (2005) 1109–1116 1111

generation resulting from the failure of regulatory Model C takes the following form:
reform is regarded as one of the main causes of the
California electricity crisis (Borenstein, 2002). Sparked Dyt ¼ k þ fyt1 þ bt þ y1 DUt
by fears of what happened in California and acting in X
k
response to a Victoria Security of Electricity Taskforce þ g1 DTt þ dj Dytj þ et : ð2Þ
Report (2000), in 2000–2001 the Victorian government j¼1
initiated a program of encouraging voluntary reductions
in electricity consumption by industry during peak Here, D is the first difference operator, et is a white noise
periods to ensure security of supply. As Australia comes disturbance term with variance s2 ; and t ¼ 1;y,T is an
under increasing international pressure to ratify the index of time. The Dyt2j terms on the right-hand side of
Kyoto protocol it is important to know what the effect of Eqs. (1) and (2) allow for serial correlation and ensure
further implementation of energy conservation policies that the disturbance term is white noise. DUt is an
along these lines will be on employment and output. indicator dummy variable for a mean shift occurring at
time TB and DTt is the corresponding trend shift
variable, where
3. Data and econometric methodology (
1 if t > TB;
DUt ¼
3.1. Data 0 otherwise:

The study employs annual time series data from 1966
to 1999. Total electricity consumption per capita
(measured in kWh per capita), real GDP per capita
(1995=100) and an index of manufacturing sector
employment are from the International Energy Agency
and IMF International Financial Statistics. The period
for the analysis was dictated by data availability.
Following the extant literature, all variables were
transformed into natural logs because this helps to
induce stationarity in the variance–covariance matrix
(Chang et al., 2001; Fatai et al., 2001).
3.2. Unit root tests
A three-stage procedure was followed to test the
direction of causality. In the first stage the order of
integration was tested using the Augmented Dickey–
Fuller (ADF), Phillips–Perron (PP) and Zivot and
Andrews’ (1992) unit root tests. While one of the
advantages of the bounds test for cointegration is that it
can be applied irrespective of whether the variables are
integrated of order zero Ið0Þ or integrated of order 1
Ið1Þ; to implement the Granger causality tests all
variables must be Ið1Þ: The lag length in the ADF test
was selected to minimize the Schwarz Bayesian criterion,
while the bandwidth for the PP test was selected with the
Newey-West Bartlett kernel.
We used two versions of the Zivot and Andrews
(1992) test. These are in (Zivot and Andrews (1992),
terminology) model A, which allows for a one break in
the intercept of the trend function and model C, which
allows for one break in intercept and slope.
Model A has the following form:
X
k þ
Dyt ¼ k þ fyt1 þ bt þ y1 DUt þ dj Dytj þ et : ð1Þ
and
(
t  TB if t > TB;
DTt ¼
0 otherwise:
Zivot and Andrews (1992) provide asymptotic critical
values for their test, but it is well known that these are
not reliable in small sample sizes. Thus, we calculate
exact critical values for our sample size of 34 observa-
tions for model A and model C following Zivot
and Andrews’ (1992) methodology. We estimate an
ARMA (p; q) model for each Dyit ; with p and q
selected according to the Schwarz Bayesian criterion.
The implied ARMA process is then used as the
data generating process for generation of 5000 34-
observation series under the null hypothesis of a unit
root with no structural breaks. We obtain a minimum
ADF statistic for each of the 5000 series. The
critical values are then constructed from this empirical
distribution.
3.3. Cointegration
The second stage involves testing for the existence of a
long-run equilibrium relationship between electricity
consumption, real income and employment growth
using the bounds test. This involves investigating the
existence of a long-run relationship using the following
unrestricted error correction model (UECM):
X
n X
n
D ln ECt ¼ aoEC þ biEC D ln ECti þ ciEC D ln GNIti
i¼1 i¼1
X
n
diEC D ln EMti þ s1EC ln ECt1 þ s2EC ln GNIt1
i¼1

j¼1 þ s3EC ln EMt1 þ e1t ; ð3Þ

 ARTICLE IN PRESS
1112 P.K. Narayan, R. Smyth / Energy Policy 33 (2005) 1109–1116

X
n X
n
relationship (this term is not included if the variables are
D ln GNIt ¼ aoGNI þ biGNI D ln GNIti þ ciGNI D ln ECti
i¼1 i¼1 not cointegrated) and e1t ; e2t and e3t are serially
X
n independent random errors with mean zero and finite
þ diGNI D ln EMti þ s1GNI ln GNIt1 covariance matrix. The dependent variable is regressed
i¼1 against past values of itself and other variables. The lag
þ s2GNI ln ECt1 þ s3GNI ln EMt1 þ e1t ; length P is based on the Schwarz Bayesian criterion.
ð4Þ
X
n X
n
D ln EMt ¼ aoEM þ biEM D ln EMti þ ciEM DlnGNIti 4. Empirical results
i¼1 i¼1
X
n
4.1. Order of integration and cointegration
þ diEM D ln ECti þ s1EM ln EMt1
i¼1
The results for the ADF and PP unit root tests for
þ s2EM ln GNIt1 þ s3EM ln Ect1 þ e1t : electricity consumption per capita (ln EC), real income
ð5Þ per capita (ln GNI) and employment (ln EM) are
Here, D is the first difference operator, ln EC is the log reported in Table 2. The ADF and Phillips–Perron
of per capita electricity consumption, ln GNI is the log tests give the same results. The null hypothesis that the
of per capita real income and ln EM is the log of the series contain a unit root cannot be rejected for any of
manufacturing sector employment index. The F test is the series in levels at the 5% level, but when the data are
used to determine whether a long-run relationship exists first differenced, the null of nonstationarity can be
between the variables through testing the significance of rejected for all series at the 5% level. This indicates that
the lagged levels of the variables. With small sample electricity consumption per capita, employment and real
sizes the relevant critical values potentially deviate income per capita are Ið1Þ:
substantially from the critical values reported in Pesaran The results of the Zivot and Andrews (1992) model A
et al. (2001). Thus, we calculate exact critical value and model C unit root tests and corresponding exact
bounds for T ¼ 34 with two regressors, based on 40,000 critical values are reported in Table 3. They find no
replications for the F -statistic. If the computed F additional evidence against the unit root hypothesis
statistics fall outside the critical bounds, it follows that relative to the unit root tests without a structural break.
a conclusive decision can be made regarding cointegra- In each case we are unable to reject the unit root null
tion without knowing the order of integration of the hypothesis at the 10% level or better, confirming that
regressors. the series are Ið1Þ: The break dates are statistically
significant for model A in each case. With electricity
3.4. Granger causality consumption only the break in the slope of the trend is
statistically significant in model C and neither the break
The third stage involves constructing standard Gran- in the intercept nor slope is statistically significant in
ger-type causality tests augmented with a lagged error model C for employment or real income. The statisti-
correction term in the event that the series are cally significant breaks are 1971 and 1990 (electricity
cointegrated. Where such a long-run relationship exists, consumption), 1980 (employment) and 1983 (real
Granger causality tests involve specifying a multivariate income). While 1980 was a period of strong labour
pth-order vector error correction model (VECM) as
follows: Table 2
2 3 2 3 Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) tests for
ln ECt a1 unit roots
6 7 6 7
ð1  LÞ4 ln GNIt 5 ¼ 4 a2 5 Variables ADF statistic CV (LL) PP statistic CV (BW)
ln EMt a3 Ln ECt 1.813 3.552 (0) 2.123 3.559 (7)
2 32 3
b11i b12i b13i ln ECti Ln GNIt 2.839 3.558 (1) 2.045 3.553 (1)
Xp
6 76 7 Ln ECt 2.365 3.553 (0) 2.552 3.553 (2)
þ ð1  LÞ4 b21i b22i b23i 54 ln GNIti 5
Dln ECt 3.625 2.957 (0) 3.625 2.957 (0)
i¼1
b31i b32i b33i ln EMti Dln GNIt 2.973 2.957 (0) 2.713 2.617 (8)
2 3 2 3 Dln ECt 5.007 2.957 (0) 5.007 2.957 (0)
y e1t
6 7 6 7 Notes: CV stands for critical values, which are at the 5% level. The
þ 4 W 5½ECTt1  þ 4 e2t 5: ð6Þ
critical values are calculated from MacKinnon (1991). LL stands for
c e3t lag length and BW stands for bandwidth. The lag lengths are selected
using the Schwarz Bayseian criterion while the bandwidth is selected
In addition to the variables defined above, (12L) is using the Newey–West Bartlett kernel. Both tests were conducted
the difference operator, ECTt21 is the lagged error- including an intercept and linear deterministic trend. Tests using an
correction term derived from the long-run cointegrating intercept only were quantitatively similar.
 ARTICLE IN PRESS
P.K. Narayan, R. Smyth / Energy Policy 33 (2005) 1109–1116 1113

Table 3
Zivot–Andrews test for unit roots in the presence of one structural break

Electricity consumption Real income Employment

Model A Model C Model A Model C Model A Model C

TB 1990 1971 1983 1979 1980 1980

f 0.2175 0.2136 0.9350 0.3222 0.9787 0.9621
(3.4530) (3.0078) (5.0609) (4.3465) (4.9066) (4.6926)
y 0.0330 0.0333 0.1841 0.1202 0.0682 0.0642
(2.4727) (0.0033) (3.5950) (0.0059) (3.2119) (0.0016)
g — 2.1156 — 3.6400 — 2.8084
(6.0910) (1.3454) (0.5323)
Lag length 1 0 6 0 2 2

Exact critical values for tf

1% 6.8233 6.8568 6.9783 6.7508 6.7878 6.6471
5% 5.8716 5.7933 5.9359 5.8404 5.7924 5.8540
10% 5.4353 5.3787 5.4539 5.3865 5.3657 5.4378

Notes:  denotes statistical significance at the 1% level. The critical values for the structural break dummy variables follow the asymptotic standard
normal distribution. The critical values for tf are calculated based on 5000 replications of a Monte Carlo simulation as described in the text.

Table 4 within the error correction mechanism (ECM). The

Bounds tests for cointegration
F-statistics Exact 5% critical Exact 1%
value bounds critical value
bounds
I(0) I(1) I(0) I(1)
FEC ðECjGNI; EMÞ ¼ 5:408 3.990 4.538 4.943 6.128
FGNI ðGNIjEC; EMÞ ¼ 1:478
FEM ðEMjEC; GNIÞ ¼ 3:347
Notes: Critical values are calculated using stochastic simulations for
T ¼ 34 and two regressors based on 40,000 replications.
growth, 1983 and 1990 were periods of recession in
Australia.
The results of the bounds test for cointegration,
together with exact critical values for T ¼ 34; are
reported in Table 4. The bounds test indicates that
cointegration is only present when electricity consump-
tion is the dependent variable. This is because
FEC ðECjGNI; EMÞ is higher than the upper bound
critical value at the 5% critical value. However, the
bounds test indicates that when real income and
employment are the dependent variables FGNI ðGNIj
EC; EMÞ and FEM ðEMjEC; GNIÞ are lower than the
lower bound critical value at the 5% level. Therefore,
there is no cointegration when these variables are
treated as the dependent variables, meaning that there
is one single long-run relationship.
The existence of a cointegrating relationship among
electricity consumption, employment and real income
suggests that there must be Granger causality in at least
one direction, but it does not indicate the direction of
temporal causality between the variables. Table 5
examines short-run and long-run Granger causality
F-statistics on the lagged explanatory variables of the
ECM indicates the significance of the short-run causal
effects. The t-statistics on the coefficients of the lagged
error-correction term indicates the significance of the
long-run causal effect. Beginning with the short-run
effects, real income is significant at the 10% level in the
electricity consumption and employment equations, but
neither electricity consumption nor employment is
significant. This suggests that in the short-run there is
weak unidirectional Granger causality running from
income to electricity consumption and income to
employment, but there is neutrality between electricity
consumption and employment.
Turning to the t-statistic on the coefficient of
the lagged error-correction term, the coefficient on the
lagged error-correction term is significant in the
electricity consumption equation at 1% with a negative
sign, which confirms the result of the bounds test for
cointegration. We do not include a lagged error-
correction term when either employment or real income
is the dependent variable because the variables are not
cointegrated in these cases. The results from the Granger
causality test implies that changes in electricity con-
sumption are a function of disequilibrium in the
cointegrating relationship, but this is not the case for
employment and income. In other words, in the long run
both employment and income Granger cause electricity
consumption, meaning that causality runs interactively
through the error correction term from employment and
income to electricity consumption.1
1
Fatai et al. (2001) use the ARDL approach to infer causality. We
also used the ARDL approach to infer causality and this gave the same
results as the Granger causality tests, which are reported.
 ARTICLE IN PRESS
1114 P.K. Narayan, R. Smyth / Energy Policy 33 (2005) 1109–1116

Table 5 1.6
Results of Granger causality F-tests
1.2
Dependent D ln ECt D ln GNIt D ln EMt ECTt (t-statistic)
variable
0.8
D ln ECt — 2.9682 1.2445 0.0415
(0.0514) (0.2881) (4.5669)
0.4
D ln GNIt 0.8048 — 1.3221 —
(0.4472) (0.2666)
D ln EMt 0.1533 2.7710 — — 0.0
(0.8578) (0.0624)
-0.4
Note: () denotes statistical significance at the 1% and 10% levels 78 80 82 84 86 88 90 92 94 96 98
respectively. Figures in parenthesis below D ln ECt ; D ln GNIt and
D ln EMt are probability values. CUSUM of Squares 5% Significance

Fig. 1. Plot of the CUSUM of squares when ln ECt is the dependent

variable.
4.2. Constancy of cointegration space

One problem with time series regression models is that Table 6

the estimated parameters may change over time.
Unstable parameters can result in model misspecifica-
tion and, if left undetected, have the potential to bias the
results. To account for this, here, we examine whether
the estimated elasticities are stable over time. To do this
we use the Pesaran and Pesaran (1997) and Hansen
(1992) tests for parameter instability.
The Pesaran and Pesaran (1997) test amounts to
estimating the error correction models through taking
each differenced variable as a dependent variable
together with the lagged error correction term. This
exercise is only possible for the equation, which has
electricity consumption as the dependent variable, given
that this is the only equation for which there is
cointegration in this model. The error correction term
is calculated from the long run cointegrating vector.
Once the model has been estimated, Pesaran and
Pesaran (1997) suggest applying the cumulative sum of
recursive residuals (CUSUM) and the CUSUM of
square (CUSUMSQ) tests proposed by Brown et al.
(1975) to assess the parameter constancy. The models
were estimated by OLS and the residuals subjected to
the CUSUMSQ test. Fig. 1 plots the CUSUMSQ
statistic when electricity consumption is the dependent
variable. The results indicate no instability in the
coefficients as the plot of the CUSUMSQ statistics are
confined within the 5% critical bounds of parameter
stability.
As a further check on parameter stability the
parameter non-constancy tests for I(1) processes advo-
cated by Hansen (1992) were employed. Hansen (1992)
proposes three tests—SupF, Meanf, and LC —which all
have the same null hypothesis that the parameters are
stable. The Hansen suite of test results, together with
their probability values, are reported in Table 6. They
indicate parameter stability, since the probability values
for each test are greater than 0.05. The Hansen test
statistics corroborate those of the Pesaran and Pesaran
Hansen test for parameter stability
Tests Test statistic Probability value
ln EC is the dependent variable
LC 0.0837 >0.20
MeanF 0.8256 >0.20
SupF 1.6386 >0.20
Note: The test program is available from http://www.ssc.wisc.edu/
bhansen/.
(1997) CUSUMSQ test. This indicates that the structure
of the parameters have not diverged abnormally over
the period of the analysis.
4.3. Forecasting electricity consumption
We finish through using the Box–Jenkins autoregres-
sive integrated moving average (ARIMA) model to
forecast per capita electricity consumption for Australia
for the decade 2000–2010. To gauge the accuracy of the
forecasting performance we also calculate in-sample
forecasts of electricity consumption and use the Theil
index and the mean absolute percentage error as
measures of forecasting accuracy. Since these methods
are widely known, to conserve space, we do not repeat
them here.
The forecasts of per capita electricity consumption
over the 2000–2010 period together with the actual
consumption data from 1990 to 1999 are presented in
Table 7. The actual, fitted and residuals of electricity
consumption are plotted in Fig. 2. Visual inspection
suggests that our forecasts are highly accurate. Upon
using robust forecasting accuracy means we find that the
Theil index is very small (0.0098) and that the MAPE is
1.58. Given that the closer the Theil index moves to zero
the more accurate are the forecasts and that if the
MAPE is less than 10%, this indicates accurate forecasts
our forecasting performance is strong.
 ARTICLE IN PRESS
P.K. Narayan, R. Smyth / Energy Policy 33 (2005) 1109–1116 1115

Table 7 et al.’s (2001a) finding of unidirectional causality

Forecasts of per capita electricity consumption for Australia, 1990– running from real GDP to electricity consumption
2010 within a bivariate cointegration/vector error-correction
Year Actual Forecasts framework.
1990 7572 7253.12
1991 7621 7436.62
1992 7601 7619.27 Acknowledgements
1993 7750 7801.07
1994 7877 7982.04
We thank Hashem Pesaran and Yongcheol Shin for
1995 8021 8162.17
1996 8135 8341.48 sharing the GAUSS codes they used to produce the
1997 8303 8519.95 original set of critical values for the bounds testing
1998 8703 8697.61 approach to cointegration as reported in Pesaran et al.
1999 8884 8874.44 (2001). We also thank Heather Anderson, Mita Bhatta-
2000 — 9050.46 charya and an anonymous referee for suggestions on an
2001 — 9225.67
2002 — 9400.07 earlier version of this paper. We alone are responsible
2003 — 9573.67 for the paper’s contents.
2004 — 9746.46
2005 — 9918.46
2006 — 10089.67
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