Causality analysis between household electricity demand, electricity price and household consumption expenditure in Japan

Abstract

 It is extremely cruicial for Japan to reduce household electricity consumption so as to meet the first period target and address the tightness of electricity supply-demand after the Tohoku-Pacific Ocean Earthquake. However, only few studies which focuse on the relation between electricity demand, electricity price and consumtion expenditure in this sector can be found. In this context, while taking into account the stationarity and cointegration of variables, this study investigated Granger causality by using vector error correction (VEC) model, based on a panel data set of 9 Japanese regions during 1990-2008.
 As a result, this study shows that there are bidirectional positive causalities between household final consumption expenditure and electricity sonsumtion, and bidirectional positive/negative causalities between household electricity consumption and electricity price. It is important to incorporate these causalities into models when investigating the influence of electricity price hike and the effect of policy intervention to the price.