Does Final Energy Demand in Portugal Exhibit Long Memory? A Fractional Integration Analysis

In this paper, we measure the degree of fractional integration in final energy demand in Portugal using an ARFIMA model with and without adjustments for seasonality. We consider aggregate energy demand as well as final demand for petroleum, electricity, coal, and natural gas. Our findings suggest the presence of long memory in all of the energy demand variables. All fractional-difference parameters are positive and lower than 0.5 indicating that the series are stationary, although the mean reversion process will be slower than in the typical short run processes. We find that the highest degrees of persistence are for the final demand for petroleum and electricity closely followed by final demand for coal. The lowest degrees of persistence are in the demand for natural gas. These results have important implications for the design of energy policies. The effects of temporary policy shocks on final energy demand will tend to disappear slowly as a result of the long-memory process. Given the temporary nature of the effects of these shocks, however, more long lasting effects on final energy demand require a more permanent policy stance.