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A cointegration analysis of gasoline demand in the United States

Author

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  • Zia Wadud
  • Daniel Graham
  • Robert Noland

Abstract

Time-series estimation of gasoline demand elasticities often does not take into account the possibility of nonstationarity in the underlying data, which may render the parameter estimates spurious. Studies have shown that the time trending variables used to explain gasoline demand could be difference stationary and therefore, may require cointegration analysis to assess the relationship among the trending variables. In this work we use the cointegration technique to derive long-run and short-run demand elasticities of noncommercial gasoline consumption using time-series data for the USA from 1949 to 2004. We also attempt to incorporate the presence of a structural break in the data generation process of the time trending variables. Our results show that the consumption of gasoline and lifetime income have a long-term stable relationship after the second oil shock of 1978. Prior to the first oil shock of 1973, no such long-run relationship could be established through cointegration.

Suggested Citation

  • Zia Wadud & Daniel Graham & Robert Noland, 2009. "A cointegration analysis of gasoline demand in the United States," Applied Economics, Taylor & Francis Journals, vol. 41(26), pages 3327-3336.
  • Handle: RePEc:taf:applec:v:41:y:2009:i:26:p:3327-3336 DOI: 10.1080/00036840701477306
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    References listed on IDEAS

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    Cited by:

    1. Lin, C.-Y. Cynthia & Prince, Lea, 2013. "Gasoline price volatility and the elasticity of demand for gasoline," Energy Economics, Elsevier, vol. 38(C), pages 111-117.
    2. Park, Sung Y. & Zhao, Guochang, 2010. "An estimation of U.S. gasoline demand: A smooth time-varying cointegration approach," Energy Economics, Elsevier, vol. 32(1), pages 110-120, January.
    3. Havranek, Tomas & Irsova, Zuzana & Janda, Karel, 2012. "Demand for gasoline is more price-inelastic than commonly thought," Energy Economics, Elsevier, vol. 34(1), pages 201-207.
    4. Odeck, James & Johansen, Kjell, 2016. "Elasticities of fuel and traffic demand and the direct rebound effects: An econometric estimation in the case of Norway," Transportation Research Part A: Policy and Practice, Elsevier, vol. 83(C), pages 1-13.
    5. Mohamad Taghvaee, Vahid & Hajiani, Parviz, 2014. "Price and Income Elasticities of Gasoline Demand in Iran: Using Static, ECM, and Dynamic Models in Short, Intermediate, and Long Run," MPRA Paper 70054, University Library of Munich, Germany.
    6. Wadud, Zia, 2016. "Diesel demand in the road freight sector in the UK: Estimates for different vehicle types," Applied Energy, Elsevier, pages 849-857.
    7. Scott, K. Rebecca, 2011. "Demand and Price Volatility: Rational Habits in International Gasoline Demand," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2q87432b, Department of Agricultural & Resource Economics, UC Berkeley.
    8. Scott, K. Rebecca, 2015. "Demand and price uncertainty: Rational habits in international gasoline demand," Energy, Elsevier, vol. 79(C), pages 40-49.
    9. Leng Wong, Siang & Chia, Wai-Mun & Chang, Youngho, 2013. "Energy consumption and energy R&D in OECD: Perspectives from oil prices and economic growth," Energy Policy, Elsevier, vol. 62(C), pages 1581-1590.

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