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Analyzing U.S. Gasoline Demand: Models, Elasticities, and Economic Variables

This entry explores the econometric analysis of U.S. gasoline demand as detailed in William H. Greene's "Econometric Analysis." It covers key variables, including total gasoline consumption, price indices for gasoline, cars, and public transportation, as well as per capita disposable income and population metrics. Various demand models are discussed, including linear and multiplicative approaches, alongside elasticity calculations. The distinction between short-run and long-run elasticities highlights how consumer habits and durable goods influence demand over time.

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Analyzing U.S. Gasoline Demand: Models, Elasticities, and Economic Variables

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  1. Gasoline Demand Example William H. Greene, Econometric Analysis, 4th Edition, Macmillan, 2000

  2. Variables g = Total U.S. gasoline consumption, computed as total expenditure divided by price index Pg = Price index for gasoline Y = Per capita disposable income Pnc = Price index for new cars Puc = Price index for used cars pop = U.S. total population in millions. Ppt = Price index for public transportation Year = Year Pd = Aggregate price index for consumer durables Pn = Aggregate price index for consumer nondurables Ps = Aggregate price index for consumer services lg = log(100*g/pop) li = log(Y) lpg = log(Pg) lpnc = log(Pnc) lpuc = log(Puc)

  3. Linear Gasoline Demand Model

  4. Lagged Linear Gasoline Demand Model

  5. Multiplicative Gasoline Demand Model

  6. Lagged Multiplicative Gasoline Demand Model

  7. Elasticity Calculations from Lagged Multiplicative Gasoline Demand Model • Elasticities • Short and Long Run Elasticities differ because of either • habit persistence – buying habit change slowly over time • stock adjustment – Stock of durable goods (cars, homes) change slowly over time • Short run: regression coefficient of variable • Long run: regression coefficient of variable divided by (1 – regression coefficient of lagged dependent variable) • Short Run Elasticities • Price -0.09 • Income 0.43 • Long Run Elasticities • Price -0.09/(1 - 0.69) = -0.29 • Income 0.43/(1 - 0.69) = 1.39

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