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The price of gasoline and the demand for fuel economy: evidence from monthly new vehicles sales data

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  • Thomas H. Klier
  • Joshua Linn

Abstract

This paper uses a unique data set of monthly new vehicle sales by detailed model from 1978- 2007, and implements a new identification strategy to estimate the effect of the price of gasoline on consumer demand for fuel economy. We control for unobserved vehicle and consumer characteristics by using within model-year changes in the price of gasoline and vehicle sales. We find a significant demand response, as nearly half of the decline in market share of U.S. manufacturers from 2002-2007 was due to the increase in the price of gasoline. On the other hand, an increase in the gasoline tax would only modestly affect average fuel economy.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-09-15.

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Date of creation: 2009
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Handle: RePEc:fip:fedhwp:wp-09-15

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Related research

Keywords: Gasoline ; Automobiles - Prices;

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Cited by:
  1. Linn, Joshua, 2013. "The Rebound Effect for Passenger Vehicles," Discussion Papers dp-13-19, Resources For the Future.
  2. Chugh, Randy & Cropper, Maureen & Narain, Urvashi, 2011. "The cost of fuel economy in the Indian passenger vehicle market," Energy Policy, Elsevier, vol. 39(11), pages 7174-7183.
  3. Khanna, Shefali & Linn, Joshua, 2013. "Do Market Shares or Technology Explain Rising New Vehicle Fuel Economy?," Discussion Papers dp-13-29, Resources For the Future.
  4. Shanjun Li & Roger von Haefen & Christopher Timmins, 2008. "How Do Gasoline Prices Affect Fleet Fuel Economy?," NBER Working Papers 14450, National Bureau of Economic Research, Inc.
  5. Thomas Klier & Joshua Linn, 2011. "Fuel Prices and New Vehicle Fuel Economy in Europe," Working Papers 1117, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  6. Marco Salvi & Juerg Syz, 2011. "What drives “green housing” construction? Evidence from Switzerland," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(1), pages 86-102, February.
  7. Bruno de Borger & Jan Rouwendal, 2012. "Car User Taxes, Quality Characteristics and Fuel Efficiency: Household Behavior and Market Adjustment," Tinbergen Institute Discussion Papers 12-122/VIII, Tinbergen Institute, revised 17 Jun 2013.
  8. Thomas H. Klier, 2009. "From tail fins to hybrids: How Detroit lost its dominance of the U.S. auto market," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-17.

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