Asymmetric price effects on gasoline consumption: evidence and Implications

Abstract

ABSTRACTThe increased volatility of gasoline prices in the last 10 years has renewed the interest in how gasoline demand responds to new changes. Using recent urban household survey and Metropolitan Statistical Areas (MSA) level gasoline prices, this paper examines whether rising and falling fuel prices have symmetric effects on gasoline consumption. The findings indicate that an increase in gasoline prices induces larger behavioural responses than a decrease in gasoline prices would do. These results not only challenge the perfect price reversibility assumption used in many energy demand models, but also bear important implications for evaluating gasoline tax policies and demand projections.