Comparison of forecast performance for homogeneous, heterogeneous and shrinkage estimators. Some empirical evidence from US electricity and natural-gas consumption

Maddala et al. [Journal of Business and Economic Statistics, 15 (1997) 90] obtained short-run and long-run elasticities of energy demand for each of 49 US states over the period 1970-1990. They showed that heterogeneous time series estimates for each state yield inaccurate signs for the coefficients, while panel data estimates are not valid because the hypothesis of homogeneity of the coefficients was rejected. Their preferred estimates are those obtained using the shrinkage estimator. This paper contrasts the out-of-sample forecast performance of heterogeneous, panel and shrinkage estimators using the Maddala et al. [Journal of Business and Economic Statistics 15 (1997) 90] electricity and natural gas data sets. Our results show that the homogeneous panel data estimates give the best out-of-sample forecasts.