Directional causality in the demand for electrical energy in the United States

The majority of the studies on the demand for electrical energy have been done with single-equation models. In this paper it is demonstrated that not only is the quantity of electrical energy demanded a function of price, but price is related causally to quantity in the residential sector. The significance of this is that it is not sufficient to estimate single-equation models. Since bidirectional causality cannot be statistically rejected, any estimation of the demand for electrical energy must be done in a system of simultaneous equations to avoid specification errors and the associated problems.