Should Single-Equation Dynamic Gasoline Demand Models Include Moving Average Terms?

9 Pages Posted: 4 Jun 2008

See all articles by Robert V. Breunig

Robert V. Breunig

Australian National University (ANU) - Crawford School of Public Policy; Tax and Transfer Policy Institute (Crawford School of Public Policy, ANU); IZA Institute of Labor Economics

Date Written: May 23, 2008

Abstract

We argue that single-equation dynamic demand models applied to estimating gasoline demand should account for the slow evolution of unobservable habits and beliefs which partially determine vehicle and gasoline usage. Inclusion of unobservable habits implies that single-equation models should include moving-average terms. Ordinary least squares estimation, ubiquitous in the literature, is thus inappropriate. Using examples from Australia and the U.S., we show that estimates of long-run price and income elasticities become much less precise.

Keywords: Single-equation demand analysis, lagged adjustment, habit formation, gasoline elasticity

JEL Classification: C2, Q41

Suggested Citation

Breunig, Robert V., Should Single-Equation Dynamic Gasoline Demand Models Include Moving Average Terms? (May 23, 2008). Available at SSRN: https://ssrn.com/abstract=1140508 or http://dx.doi.org/10.2139/ssrn.1140508

Robert V. Breunig (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia
61261252148 (Phone)

HOME PAGE: http://https://crawford.anu.edu.au/crawford_people/content/staff/rbreunig.php

Tax and Transfer Policy Institute (Crawford School of Public Policy, ANU) ( email )

Canberra
Australia

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany