The Response of Consumer Spending to Changes in Gasoline Prices

Michael Gelman, Yuriy Gorodnichenko, Shachar Kariv, Dmitri Koustas, Matthew Shapiro, Dan Silverman and Steven Tadelis

American Economic Journal: Macroeconomics, 2023, vol. 15, issue 2, 129-60

Abstract: This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sharp drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, high-frequency, transaction-level data for a large panel of individuals. The average estimated marginal propensity to consume (MPC) out of unanticipated, permanent shocks to income is approximately one. This estimate accounts for the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects.

JEL-codes: D12 G51 L11 L71 L81 Q35 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (12)

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Working Paper: The Response of Consumer Spending to Changes in Gasoline Prices (2016)
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DOI: 10.1257/mac.20210024

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