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Revisiting the Price Elasticity of Gasoline Demand

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Author Info

  • Alfredo A. Romero

    ()
    (Department of Economics, College of William and Mary)

Abstract

In this document, we investigate the evolution of the income elasticity and the price elasticity of the demand for gasoline over the period 1975-2006. By using the Probabilistic Reduction Approach, we were able to model changes in mean heterogeneity and variance heterogeneity directly into the model. This method allowed us to determine the timing and the size of shifts in the elasticities. Our estimates are consistent with the current literature: there has been a shift in the price elasticity of gasoline demand. This shift, not present in the income elasticity, occurred almost at the beginning of the period of study. We use these estimates to compute several welfare measures. We also present a sketch of the relationship between a Monthly Fixed Effect panel data model and a Time Series Model with Monthly Dummy Variables.

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File URL: http://economics.wm.edu/wp/cwm_wp63.pdf
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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 63.

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Length: 37 pages
Date of creation: 29 Oct 2007
Date of revision:
Handle: RePEc:cwm:wpaper:63

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Web page: http://www.wm.edu/economics/
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Related research

Keywords: Price Elasticity; Income Elasticity; Gasoline Demand; Time Heterogeneity; Dummy Variables; Monthly Fixed Effects Panel Data Models; Time Series Models; Compensating Variation; Deadweight Loss.;

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Cited by:
  1. Britt Groosman & Nicholas Muller & Erin O’Neill-Toy, 2011. "The Ancillary Benefits from Climate Policy in the United States," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 50(4), pages 585-603, December.

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