Estimation of price elasticity of energy demand in a small open economy: Evidence from the Czech Republic (2021–2024)

This research examines the difficulties in estimating the price elasticity of energy demand during periods of extreme market volatility, with a focus on the Czech Republic as a small open economy. Utilising a detailed dataset of monthly electricity and natural gas consumption from January 2021 to December 2024, we evaluate the consistency of regression models over different time periods and the impact of auxiliary variables. Our results indicate that models based on three- and four-year datasets are notably more dependable than those using only two-year data. Monthly data analysis reveals low absolute short-term price elasticities for electricity (0.062−0.167) and natural gas (0.091−0.205), indicating that energy demand remains highly inelastic even amid sharp price increases. This suggests that price signals alone are not sufficient to drive significant short-term reductions in energy use.