California Gasoline Demand Elasticity Estimated Using Refinery Outages

Armando R. Colina, Bulat Gafarov and Jens Hilscher

No 2025-04, Working Papers from Banco de México

Abstract: This research paper presents new gasoline demand price elasticity estimates for California. The study leverages the unique characteristics of California's gasoline market and introduces a new set of proposed instruments. As a first step, the study takes advantage of California's partially isolated gasoline market, which is separated from much of the U.S. by environmental regulations. The estimating equation controls for persistent demand shocks, leading to a lower bound for the long-run elasticity of demand of -0.23. In the second step, a new set of instruments is employed to address supply and demand simultaneity, using detailed information on refinery outages to capture short-run supply shocks. The results show that the long-run demand elasticity is -0.60.

Keywords: Capacity outages; Gasoline demand price elasticity; Instrumental variable estimation; California gasoline market (search for similar items in EconPapers)
JEL-codes: C22 C36 C51 D12 Q41 (search for similar items in EconPapers)
Date: 2025-04
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Persistent link: https://EconPapers.repec.org/RePEc:bdm:wpaper:2025-04

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