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

  • Thomas H. Klier
  • Joshua Linn

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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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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