An Exploration of Australian Petrol Demand: Unobservable Habits, Irreversibility and Some Updated Estimates
AbstractWe explore a methodological improvement to the standard dynamic demand model for petrol - a general model which allows for slowly evolving, unobservable habits. If this habit formation model is correct, then standard estimation techniques produce inconsistent estimates. We find price elasticities of -0.13 (short-run) and -0.20 (long-run). Importantly, standard techniques are misleading about the precision of elasticity estimates and the confidence interval around the long-run price elasticity is quite wide. We test for price irreversibility and find, in contrast to the USA, almost no evidence that petrol responds differently to price increases and decreases. Copyright © 2009 The Economic Society of Australia.
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Bibliographic InfoArticle provided by The Economic Society of Australia in its journal Economic Record.
Volume (Year): 85 (2009)
Issue (Month): 268 (03)
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Other versions of this item:
- Robert Breunig & Carol Gisz, 2008. "An exploration of Australian petrol demand: Unobservable habits, irreversibility, and some updated estimates," Treasury Working Papers 2008-02, Treasury, Australian Government, revised Dec 2008.
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
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