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Structural shocks and dynamic elasticities in a long memory model of the US gasoline retail market

Yuliya Lovcha () and Alejandro Perez-Laborda

Empirical Economics, 2017, vol. 53, issue 2, No 2, 405-422

Abstract: Abstract A structural multivariate long memory model of the US gasoline market is employed to disentangle structural shocks and to estimate the own-price elasticity of gasoline demand. Our main empirical findings are: (1) there is strong evidence of nonstationarity and mean reversion in the real price of gasoline and in gasoline consumption; (2) accounting for the degree of persistence present in the data is essential to assess the responses of these two variables to structural shocks; (3) the contributions of the different supply and demand shocks to fluctuations in the gasoline market vary across frequency ranges; and (4) long memory makes available an interesting range of convergent possibilities for gasoline demand elasticities. Our estimates suggest that after a change in prices, consumers undertake a few measures to reduce consumption in the short- and medium-run but are reluctant to implement major changes in their consumption habits.

Keywords: Fractional integration; Persistence; Structural VAR; Variance-frequency decomposition (search for similar items in EconPapers)
JEL-codes: Q41 Q43 C32 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Structural shocks and dinamic elasticities in a long memory model of the US gasoline retail market (2016) Downloads
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DOI: 10.1007/s00181-016-1145-x

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