Revisiting the Price Elasticity of Gasoline Demand
AbstractIn 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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Bibliographic InfoPaper provided by Department of Economics, College of William and Mary in its series Working Papers with number 63.
Length: 37 pages
Date of creation: 29 Oct 2007
Date of revision:
Price Elasticity; Income Elasticity; Gasoline Demand; Time Heterogeneity; Dummy Variables; Monthly Fixed Effects Panel Data Models; Time Series Models; Compensating Variation; Deadweight Loss.;
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
- Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-10 (All new papers)
- NEP-ENE-2007-11-10 (Energy Economics)
- NEP-IND-2007-11-10 (Industrial Organization)
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