Modelling and forecasting the demand for coal in China

Abstract

In contrast with developed countries, coal is the major energy source of China. In view of its importance, this paper attempts to analyse and forecast the country's demand for coal as it moves towards the next century. To do this, we have applied three different methods to contrast their performances in fitting the Chinese data: Engle-Granger's error correction model, Hendry's error correction model and Hendry's general-to-specific approach. It is found that the Engle-Granger approach outperforms the other two in terms of having the smallest ex post forecast errors. Using the Engle-Granger approach, the model predicts that the Chinese economy will experience a 5% shortage in the year 2000.