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The Response of Consumer Spending to Changes in Gasoline Prices

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Listed:
  • Michael Gelman
  • Yuriy Gorodnichenko
  • Shachar Kariv
  • Dmitri Koustas
  • Matthew D. Shapiro
  • Dan Silverman
  • Steven Tadelis

Abstract

This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sudden, large drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, high-frequency transaction-level data for a large panel of individuals. The estimated marginal propensity to consume (MPC) out of unanticipated, permanent shocks to income is approximately one. This estimate takes into account the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects.

Suggested Citation

  • Michael Gelman & Yuriy Gorodnichenko & Shachar Kariv & Dmitri Koustas & Matthew D. Shapiro & Dan Silverman & Steven Tadelis, 2016. "The Response of Consumer Spending to Changes in Gasoline Prices," NBER Working Papers 22969, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22969
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    Cited by:

    1. Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Maarten van Rooij, 2023. "How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 109-152, July.
    2. Xinheng Liu & Shuxian Li & Chengbo Fu & Xu Gong & Chen Fan, 2024. "The oil price plummeted in 2014–2015: Is there an effect on Chinese firms' labour investment?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 943-960, January.
    3. Alonso-Alvarez, Irma & Di Nino, Virginia & Venditti, Fabrizio, 2022. "Strategic interactions and price dynamics in the global oil market," Energy Economics, Elsevier, vol. 107(C).
    4. Olivier Coibion & Yuriy Gorodnichenko & Dmitri Koustas, 2021. "Consumption Inequality and the Frequency of Purchases," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(4), pages 449-482, October.
    5. M. Adam & O. Bonnet & E. Fize & T. Loisel & M. Rault & L. Wilner, 2023. "How does fuel demand respond to price changes? Quasi-experimental evidence based on high-frequency data," Documents de Travail de l'Insee - INSEE Working Papers 2023-17, Institut National de la Statistique et des Etudes Economiques.
    6. Christiane Baumeister & James D. Hamilton, 2019. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks," American Economic Review, American Economic Association, vol. 109(5), pages 1873-1910, May.
    7. Edmund Crawley & Andreas Kuchler, 2020. "Consumption Heterogeneity: Micro Drivers and Macro Implications," Finance and Economics Discussion Series 2020-005, Board of Governors of the Federal Reserve System (U.S.).
    8. Stephanie Assad & Robert Clark & Daniel Ershov & Lei Xu, 2020. "Algorithmic Pricing and Competition: Empirical Evidence from the German Retail Gasoline Market," CESifo Working Paper Series 8521, CESifo.
    9. Crawley, Edmund, 2020. "In search of lost time aggregation," Economics Letters, Elsevier, vol. 189(C).
    10. Mary A. Burke & Ali Ozdagli, 2023. "Household Inflation Expectations and Consumer Spending: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 105(4), pages 948-961, July.
    11. Arampatzidis, Ioannis & Panagiotidis, Theodore, 2023. "On the identification of the oil-stock market relationship," Economic Modelling, Elsevier, vol. 120(C).
    12. Caldara, Dario & Cavallo, Michele & Iacoviello, Matteo, 2019. "Oil price elasticities and oil price fluctuations," Journal of Monetary Economics, Elsevier, vol. 103(C), pages 1-20.
    13. Knotek, Edward S. & Zaman, Saeed, 2021. "Asymmetric responses of consumer spending to energy prices: A threshold VAR approach," Energy Economics, Elsevier, vol. 95(C).
    14. Coibion, Olivier & Georgarakos, Dimitris & Gorodnichenko, Yuriy & van Rooij, Maarten, 2019. "How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial," Department of Economics, Working Paper Series qt3zh865pj, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    15. Gelman, Michael, 2021. "What drives heterogeneity in the marginal propensity to consume? Temporary shocks vs persistent characteristics," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 521-542.
    16. Daniel H. Weinberg & John M. Abowd & Robert F. Belli & Noel Cressie & David C. Folch & Scott H. Holan & Margaret C. Levenstein & Kristen M. Olson & Jerome P. Reiter & Matthew D. Shapiro & Jolene Smyth, 2017. "Effects of a Government-Academic Partnership: Has the NSF-Census Bureau Research Network Helped Improve the U.S. Statistical System?," Working Papers 17-59r, Center for Economic Studies, U.S. Census Bureau.
    17. Odran Bonnet & Étienne Fize & Tristan Loisel & Lionel Wilner, 2024. "Is Carbon Tax Truly More Salient? Evidence from Fuel Tourism at the France-Germany Border," CESifo Working Paper Series 10918, CESifo.
    18. Ghoddusi, Hamed & Morovati, Mohammad & Rafizadeh, Nima, 2019. "Foreign Exchange Shocks and Gasoline Consumption," Energy Economics, Elsevier, vol. 84(C).
    19. Baumeister, Christiane & Hamilton, James, 2017. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Deman," CEPR Discussion Papers 12532, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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