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

Author

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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.

Suggested Citation

  • Thomas H. Klier & Joshua Linn, 2009. "The price of gasoline and the demand for fuel economy: evidence from monthly new vehicles sales data," Working Paper Series WP-09-15, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-09-15
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    File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/2009/wp2009_15.pdf
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    Cited by:

    1. Linn, Joshua, 2013. "The Rebound Effect for Passenger Vehicles," Discussion Papers dp-13-19-rev, 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. 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.
    4. Klier, Thomas & Linn, Joshua, 2011. "Fuel Prices and New Vehicle Fuel Economy in Europe," Discussion Papers dp-11-37, Resources For the Future.
    5. 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.
    6. Shanjun Li & Christopher Timmins & Roger H. von Haefen, 2009. "How Do Gasoline Prices Affect Fleet Fuel Economy?," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 113-137, August.
    7. 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, April.

    More about this item

    Keywords

    Gasoline ; Automobiles - Prices;

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