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Transportation Oil Demand Consumer Preferences and Asymmetric Price Responses: Some UK Evidence

Author

Listed:
  • David C Broadstock

    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

  • Alan Collins

    () (Department of Economics, University of Portsmouth)

  • Lester C Hunt

    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

Abstract

The aim of this paper is to (i) establish the role of asymmetric price decompositions in UK road transportation fuel demand, (ii) make explicit the impact of the underlying energy demand trend and (iii) disaggregate the estimation for gasoline and diesel demand as separate commodities. Dynamic UK transport oil demand functions are estimated using the Seemingly Unrelated Structural Time Series Model with decomposed prices to allow for asymmetric price responses. The importance of starting with a flexible modelling approach that incorporates both an underlying demand trend and asymmetric price response function is highlighted. Furthermore, these features can lead to different insights and policy implications than might arise from a model without them. As an example, a zero elasticity for a price-cut is found (for both gasoline and diesel) implying that price reductions do not induce demand for road transportation fuel in the UK. The paper illustrates the importance of joint modelling of gasoline and diesel demand incorporating both asymmetric price responses and stochastic underlying energy demand trends.

Suggested Citation

  • David C Broadstock & Alan Collins & Lester C Hunt, 2010. "Transportation Oil Demand Consumer Preferences and Asymmetric Price Responses: Some UK Evidence," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 126, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  • Handle: RePEc:sur:seedps:126
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    File URL: http://www.seec.surrey.ac.uk/Research/SEEDS/SEEDS126.pdf
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    References listed on IDEAS

    as
    1. John Dimitropoulos & Lester Hunt & Guy Judge, 2005. "Estimating underlying energy demand trends using UK annual data," Applied Economics Letters, Taylor & Francis Journals, vol. 12(4), pages 239-244.
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    3. Hunt, Lester C. & Judge, Guy & Ninomiya, Yasushi, 2003. "Underlying trends and seasonality in UK energy demand: a sectoral analysis," Energy Economics, Elsevier, vol. 25(1), pages 93-118, January.
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    5. Daniel J. Graham & Stephen Glaister, 2002. "The Demand for Automobile Fuel: A Survey of Elasticities," Journal of Transport Economics and Policy, University of Bath, vol. 36(1), pages 1-25, January.
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    7. Lester C. Hunt & Guy Judge & Yasushi Ninomiya, 2003. "Modelling underlying energy demand trends," Chapters,in: Energy in a Competitive Market, chapter 9 Edward Elgar Publishing.
    8. David L. Ryan & André Plourde, 2009. "Empirical Modelling of Energy Demand," Chapters,in: International Handbook on the Economics of Energy, chapter 6 Edward Elgar Publishing.
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    10. David Bonilla & Timothy Foxon, 2009. "Demand for New Car Fuel Economy in the UK, 1970-2005," Journal of Transport Economics and Policy, University of Bath, vol. 43(1), pages 55-83, January.
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    12. Chitnis, Mona & Hunt, Lester C., 2012. "What drives the change in UK household energy expenditure and associated CO2 emissions? Implication and forecast to 2020," Applied Energy, Elsevier, pages 202-214.
    13. Pock, Markus, 2010. "Gasoline demand in Europe: New insights," Energy Economics, Elsevier, vol. 32(1), pages 54-62, January.
    14. Lester C. Hunt & Yasushi Ninomiya, 2003. "Unravelling Trends and Seasonality: A Structural Time Series Analysis of Transport Oil Demand in the UK and Japan," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 63-96.
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    Keywords

    Diesel; Asymmetry; Price; Underlying Energy Demand Trend (UEDT).;

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