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California Gasoline Demand Elasticity Estimated Using Refinery Outages

Author

Listed:
  • Armando R. Colina
  • Bulat Gafarov
  • Jens Hilscher

Abstract

This research paper presents new gasoline demand price elasticity estimates for California. The study leverages the unique characteristics of California's gasoline market and introduces a new set of proposed instruments. As a first step, the study takes advantage of California's partially isolated gasoline market, which is separated from much of the U.S. by environmental regulations. The estimating equation controls for persistent demand shocks, leading to a lower bound for the long-run elasticity of demand of -0.23. In the second step, a new set of instruments is employed to address supply and demand simultaneity, using detailed information on refinery outages to capture short-run supply shocks. The results show that the long-run demand elasticity is -0.60.

Suggested Citation

  • Armando R. Colina & Bulat Gafarov & Jens Hilscher, 2025. "California Gasoline Demand Elasticity Estimated Using Refinery Outages," Working Papers 2025-04, Banco de México.
    • Handle: RePEc:bdm:wpaper:2025-04
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    File URL: https://www.banxico.org.mx/publications-and-press/banco-de-mexico-working-papers/%7B217674A4-C97F-BD7F-8A3D-D83B495B2153%7D.pdf
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    More about this item

    Keywords

    Capacity outages; Gasoline demand price elasticity; Instrumental variable estimation; California gasoline market;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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