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Gasoline Demand Example

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

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Gasoline Demand Example

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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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