Working Paper

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


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;

Access Documents

Authors

    Klier, Thomas H.

    Linn, Joshua

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2009

Number: WP-09-15