The price of gasoline and the demand for fuel economy: evidence from monthly new vehicles sales data

Thomas Klier and Joshua Linn

No WP-09-15, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper uses a unique data set of monthly new vehicle sales by detailed model from 1978- 2007, and implements a new identification strategy to estimate the effect of the price of gasoline on consumer demand for fuel economy. We control for unobserved vehicle and consumer characteristics by using within model-year changes in the price of gasoline and vehicle sales. We find a significant demand response, as nearly half of the decline in market share of U.S. manufacturers from 2002-2007 was due to the increase in the price of gasoline. On the other hand, an increase in the gasoline tax would only modestly affect average fuel economy.

Keywords: Gasoline; Automobiles - Prices (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ene and nep-mkt
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Citations: View citations in EconPapers (11)

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