CORE DP 2026 / 06

Revisiting Energy Demand Elasticity: The Power of Regime Switch / Jean Hindriks, Lucie Paré, Valerio Serse 

> This paper estimates residential electricity and gas price elasticities during the recent energy crisis, a period of exceptionally large price increases, using VAT-inclusive prices that reflect both market dynamics and policy-induced variation. We compare a standard constant-elasticity (log–log) specification with two regime-switching approaches: a structural break model distinguishingpre- and post-crisis elasticities, and a threshold model allowing elasticities to vary with the price level. While widely used, constant-elasticity models may poorly approximate demand under large price changes; in this context, regime-switching specifications provide complementary insights into how consumer responses vary across price regimes. Our results reveal distinct patterns across markets: for electricity, elasticity is lower in high-price periods than in low-price regimes, whereas for gas, only high-price periods induce significant reductions in consumption.