Modeling demand for coal in India: vector autoregressive models with cointegrated variables

In this paper, long-run structural relationships of coal demand with price and income variables have been estimated for the four major coal consuming sectors in India using annual time series data from 1970-1995. Some of the recent developments in multivariate dynamic econometric time series modelin g techniques have been used, including the estimation of long-run cointegra ting relationships, short-run dynamics and measurement of the effects of sh ocks and their effect on the evolution of dynamic coal demand system. The m odels have been estimated using cointegrating VAR framework, which allows f or endogeneity of regressors, Results indicate that coal demand is likely t o grow more than proportionately with economic growth due to high GDP elast icities and low price elasticities. Further, coal prices are found to be we akly exogenous in all the sectors except cement. Persistence profiles indic ate that coal demand systems in the four sectors seem to be stable and conv erge to equilibrium within a period of around 4-7 years after a typical sys tem-wide shock. (C) 2000 Elsevier Science Ltd. All rights reserved.