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Flex cars and the alcohol price

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  • Ferreira, Alex Luiz
  • de Almeida Prado, Fernando Pigeard
  • da Silveira, Jaylson Jair

Abstract

We build a model that incorporates the effect of the innovative "flex" car, an automobile that is able to run with either gasoline or alcohol, on the dynamics of fuel prices in Brazil. Our model shows that differences regarding fuel prices will now depend on the proportions of alcohol, gasoline and flex cars in the total stock. Conversely, the demand for each type of car will also depend on the expected future prices of alcohol and gasoline (in addition to the car prices). The model reflects our findings that energy prices are tied in the long run and that causality runs stronger from gasoline to alcohol. The estimated error correction parameter is stable, implying that the speed of adjustment towards equilibrium remains unchanged. The latter result is probably due to a still small fraction of flex cars in the total stock (approx. 5%), despite the fact that its sales nearly reached 100% in 2006.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 31 (2009)
Issue (Month): 3 (May)
Pages: 382-394

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Handle: RePEc:eee:eneeco:v:31:y:2009:i:3:p:382-394

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Discrete choice Automobile Alcohol Gasoline Energy;

References

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Cited by:
  1. Juliano Assuncao & Joao Paulo Pessoa & Leonardo Rezende, 2013. "Flex Cars and Competition in Ethanol and Gasoline Retail Markets," CEP Discussion Papers dp1251, Centre for Economic Performance, LSE.
  2. Du, Xiaodong & Carriquiry, Miguel A., 2013. "Flex-fuel vehicle adoption and dynamics of ethanol prices: lessons from Brazil," Energy Policy, Elsevier, vol. 59(C), pages 507-512.

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