ELASTICITY OF DEMAND FOR NATURAL GAS IN WESTERN AND CENTRAL CANADA

Abstract

In this paper, we used the Autoregressive Distributed Lag (ARDL) model and the bounds test approach to estimate the elasticity of demand for natural gas in Western and Central Canada. The best model specification selected by Schwarz Information Criterion (SIC) for each province suggests that there exist long-run relationships between the dependent variable and independent variables for all provinces, except Ontario. Consumption per capita in these provinces can be explained by natural gas prices, electricity prices, income, and heating degree days (a measurement for the weather factor) in levels for the selected specification. The results show that natural gas demand is very inelastic with respect to natural gas prices and also with respect to heating degree days.