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

Abstract

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.