The Relationship Between Energy Productivity and Energy Price in Iran: an Asymmetric Cointegration Approach

The relationship between the productivity and price of energy is an important issue for policy making and energy planning. The main purpose of this paper is to examine and reveal the long run relationship between these two variables in the Iranian economy. The current study results reject a long run relationship between price and energy productivity,based on a standard co-integration test. However, using an asymmetric co-integration (hidden cointegration) approach, we observe a meaningful relationship between price end energy efficiency. This results implies that continuation of the decreasing trend of real energy prices will result in further reductions in energy productivity. It is thus essential that energy prices be adjusted as part of energy conservation policies.