• Environmental and Resource Economics Review
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• v.28 no.3
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• pp.437-465
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• 2019

In this study, we propose a new method to forecast long-term energy demand in Korea. Based on Chang et al. (2016), which models the time varying long-run relationship between electricity demand and GDP with a function coefficient panel model, we design several schemes to retain objectivity of the forecasting model. First, we select the bandwidth parameters for the income coefficient based on the out-of-sample forecasting performance. Second, we extend the income coefficient using the functional principal component analysis method. Third, we proposed a method to reflect the elasticity change patterns inherent in Korea. In the empirical analysis part, we forecasts the long-term energy demand in Korea using the proposed method to show that the proposed method generates more stable long term forecasts than the existing methods.