Persistence in per capita energy consumption: A fractional integration approach with a Fourier function

Abstract

In this study, we investigate the degree of persistence for aggregate energy consumption per capita for 113 countries over the period 1960-2014 through a recently introduced fractional unit root test with a Fourier function to allow multiple smooth structural breaks. We also employ the ADF unit root test, the efficient Wald test for fractional unit-roots. and the Fourier ADF test to make a comparison and to enrich the study. The empirical results considering the fractional Fourier unit root test indicate two crucial points. First, shocks have only temporary effects on energy consumption per capita, and it will vanish slowly as a result of the long memory characteristic. Therefore even transitory shocks have persistence effects, which require permanent policies due to their nature.This inference indifferent from what would be erroneously suggested by the dichotomous approach for stationarity and nonstationarity that temporary shocks will have transitory effects. Second, the integration degree of energy consumption per capita may change due to the existence of a structural break: therefore, policymakers must be aware of the varying integration degree to design and implement the best policies. (C) 2020 Elsevier B.V. All rights reserved.