Revisiting the Price Elasticity of Gasoline Demand

Alfredo Romero ()
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Alfredo Romero: Department of Economics, College of William and Mary

No 63, Working Papers from Department of Economics, College of William and Mary

Abstract: In this document, we investigate the evolution of the income elasticity and the price elasticity of the demand for gasoline over the period 1975-2006. By using the Probabilistic Reduction Approach, we were able to model changes in mean heterogeneity and variance heterogeneity directly into the model. This method allowed us to determine the timing and the size of shifts in the elasticities. Our estimates are consistent with the current literature: there has been a shift in the price elasticity of gasoline demand. This shift, not present in the income elasticity, occurred almost at the beginning of the period of study. We use these estimates to compute several welfare measures. We also present a sketch of the relationship between a Monthly Fixed Effect panel data model and a Time Series Model with Monthly Dummy Variables.

Keywords: Price Elasticity; Income Elasticity; Gasoline Demand; Time Heterogeneity; Dummy Variables; Monthly Fixed Effects Panel Data Models; Time Series Models; Compensating Variation; Deadweight Loss. (search for similar items in EconPapers)
JEL-codes: D12 L91 Q31 Q41 C22 C23 C50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-ind
Date: 2007-10-29

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Persistent link: http://EconPapers.repec.org/RePEc:cwm:wpaper:63

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