One more for the road: Reconsidering whether OECD gasoline income and price elasticities have changed over time

This paper determines whether gasoline income and price elasticities have changed. To do so, the paper considers a balanced, but particularly long (1960-2017) panel of 17 OECD countries. In addition, it employs two methods that vary to the extent that they allow for cross-sectional and time heterogeneity: rolling window, mean group regressions and time varying estimates. We find that the price elasticity increased in absolute terms during the energy crises (1973-1985), peaking thereafter and then becoming smaller. While income elasticities are not constant over time, they do not deviate much from time-invariant estimates. Similarly, price elasticities have been more or less stable for about the past two decades. This last finding suggests that the price peak of the 1970s-early 1980s had a permanent effect on demand that was not replicated during the more recent (i.e., centered around 2008), and similar in magnitude, price increase and fall.

Automated summary

This study examines the changes in gasoline income and price elasticities using a long panel data of 17 OECD countries from 1960 to 2017. Two methods, rolling window mean group regressions and time varying estimates, are employed to capture cross-sectional and time heterogeneity. The findings suggest that the price elasticity increased during the energy crises, peaked and then decreased. While income elasticities varied over time, they did not deviate significantly from time-invariant estimates. Similarly, price elasticities have remained relatively stable in the past two decades. This indicates that the price peak in the 1970s-early 1980s had a lasting impact on demand, unlike the more recent price fluctuations centered around 2008.