Essays on Applied Econometrics

Abstract

This dissertation includes three essays on applied econometrics. Chapter 1 investigates interfuel substitution in the United States using the longest span prices and quantities that have ever been studied before (to our knowledge), over nearly 100 years (from 1919 to 2012). In doing so, it introduces recent state-of-the-art advances in financial econometrics to the empirical energy demand literature. It estimates a set of income elasticities, own- and cross-price elasticities, and Allen and Morishima elasticities of substitution, consistent with neoclassical microeconomic theory and the data generating process. It finds that there is a small but statistically significant substitution possibility between crude oil and natural gas, and that natural gas is a substitute for coal when the price of coal changes, but coal is not a substitute for natural gas when the price of natural gas changes. Chapter 2 takes the econometric approach to productivity measurement to measure and analyze the rate and biases of technical change at the sectoral level in eleven major U.S. industries over the period from 1947 to 2010. It allows for factor demand volatility spillovers by merging the econometric approach to productivity measurement with recent advances in financial econometrics. It finds that there have been significant productivity increases in most of the sectors except in the mining, health, and hospitality sectors in the recent decades. It also finds that the bias of technical change is generally labor-saving and complete bias towards a single factor is observed in some sectors. It concludes that factors are weak Morishima substitutes in most of the sectors. Chapter 3 investigates biofuel substitution in the U.S. transportation sector, for the period from 1990 to 2017. In the context of the locally flexible Normalized Quadratic (NQ) cost function with a time-varying covariance matrix of the errors in the demand system, it estimates a set of elasticities of substitution to investigate how the introduction of biofuel influences interfuel substitution and the demand for energy in the transportation sector. It finds that interfuel substitution is generally low but there exists substitution possibilities between biofuel, and fossil fuels in the U.S. transportation sector.