(with Stephane Auray) October 2020
This paper provides a VARX approach for the estimation of electricity demand in France. Our methodology takes into account the complex relationship between weather variables and electricity demand, as well as the correlation between electricity and macroeconomic variables. We are able to provide a reliable conditional forecasting that, within the VAR framework, takes into account the common dependency of electricity consumption and other variables. While the VAR approach is not novel within this literature, our main contributions lie on the use of flexible functions that capture the role of weather to explain electricity consumption together with macroeconomic trend and cycle variables, and on the use of very detailed and comprehensive data on actual metered consumption of electricity in France. In-sample and out-sample forecasts provide evidence that our method is reliable for predicting future scenarios conditional on exogenous variables.