Testing for short and long-run asymmetric responses and structural breaks in the retail gasoline supply chain

This research examines the short-run and long-run relationship between the retail gasoline price, the spot gasoline price, and the price of West Texas Intermediate (WTI) crude oil along the gasoline supply chain. We find mixed evidence of short-run asymmetry in all stages of the retail gasoline supply chain. We fail to reject long-run symmetry at each stage of the retail gasoline supply chain. Additionally, we find a significant structural break in the crude oil-spot gasoline relationship after October 17, 2005. There is weak evidence of long-run oil price endogeneity after October 17, 2005. This structural change reverses the direction of short-run asymmetry between these two time series after the break. We find no significant structural break in the spot gasoline-retail gasoline relationship.     

Road transport energy demand in West Africa: a test of the consumer-tolerable price hypothesis

This study estimates road transport energy demand (both aggregate energy fuel and gasoline energy fuel) in West Africa using the Pooled Mean Group Estimate and the Panel FMOLS. Primarily, we test for the nonlinearity in the price effects (hereafter referred to as the consumer-tolerable price hypothesis), which is motivated by Adom (2017. “The long-run Price Sensitivity Dynamics of Industrial and Residential Electricity Demand: The Impact of Deregulating Electricity Prices” Energy Economics 62: 43–60). First, for the baseline model, we find that, in the long-run, the energy conservation potency of pricing tools is restrained due to the presence of a rebound effect. Similar result is obtained in the short-run with evidence of cross-sectional differences. Second, in the long-run, we find that the demand–price relation is an inverted U-shaped, but we could only confirm this for Nigeria and Ghana; this suggests that, in the long-run, price disincentive tools have to be higher than a required price threshold in order to induce energy conservation behaviours in these economies.     

Gasoline prices,gasoline consumption,and new-vehicle fuel economy: Evidence for a large sample of countries

Countries differ considerably in terms of the price drivers pay for gasoline. This paper uses data for 132 countries for the period 1995–2008 to investigate the implications of these differences for the consumption of gasoline for road transport. To address the potential for simultaneity bias, we use both a country's oil reserves and the international crude oil price as instruments for a country's average gasoline pump price. We obtain estimates of the long-run price elasticity of gasoline demand of between − 0.2 and − 0.5. Using newly available data for a sub-sample of 43 countries, we also find that higher gasoline prices induce consumers to substitute to vehicles that are more fuel-efficient, with an estimated elasticity of + 0.2. Despite the small size of our elasticity estimates, there is considerable scope for low-price countries to achieve gasoline savings and vehicle fuel economy improvements via reducing gasoline subsidies and/or increasing gasoline taxes.     

Modelling UK sub-sector industrial energy demand

The importance of considering homogenous economic agents when estimating energy demand functions is recognized in the literature, but so far data availability problems have explained the prevalence of empirical analyses only at an aggregate level. Motivated by the goal of developing the new industrial module to be adopted by the UK government Department of Business, Energy and Industrial Strategy (BEIS) for their econometric Energy Demand Model, we propose the first cointegration analysis that provides evidence on energy demand elasticities with respect to economic activity and energy price at a disaggregated industrial level. While the average of our estimates are comparable to those of the existing literature on the industrial sector as a whole, we find that there is considerable heterogeneity in relation to the long-run impact of economic activity and energy price on energy consumption, as well as to the speed with which firms re-adjust their equilibrium demand of energy in response to economic shocks. Finally, we learn that long-run disequilibria are tackled through altering the level of energy consumption rather than economic activity, a conclusion that has important implications for policy analysis.     

Asymmetric error correction models for the oil–gasoline price relationship

The existing literature on price asymmetries does not systematically investigate the sensitivity of the empirical results to the choice of a particular econometric specification. This paper fills this gap by providing a detailed comparison of the three most popular models designed to describe asymmetric price behavior, namely asymmetric ECM, autoregressive threshold ECM and ECM with threshold cointegration. Each model is estimated on a common monthly data set for the gasoline markets of France, Germany, Italy, Spain and UK over the period 1985–2003. All models are able to capture the temporal delay in the reaction of retail prices to changes in spot gasoline and crude oil prices, as well as some evidence of asymmetric behavior. However, the type of market and the number of countries which are characterized by asymmetric oil–gasoline price relations vary across models. The asymmetric ECM prescribes that long-run price asymmetries are most likely to be found in the second stage of the transmission chain. Conversely, the ECM with threshold cointegration suggests that long-run price asymmetries vary across countries and markets. Short-run price asymmetries are captured by the asymmetric ECM specification and the TAR-ECM. The latter model suggests that all European countries are likely to be affected by asymmetries at the distribution stage, while the results obtained with the asymmetric ECM are mixed.     

The asymmetric response of gasoline prices to oil price shocks and policy uncertainty

This study shows that the effect of oil price shocks on the real price of gasoline is interrelated with economic policy uncertainty. Economic policy shocks are linked with increased real price of gasoline and reduced consumption of gasoline. There is evidence that the fluctuation of both real gasoline prices and of gasoline consumption is associated with uncertainty of tax legislation expiration expectation as well as other components of economic policy uncertainty. Positive shocks to economic policy uncertainty have relatively larger effects on gasoline prices than do negative shocks to economic policy uncertainty. Economic policy uncertainty responds asymmetrically to increases and decreases in real oil price. Shocks to economic policy uncertainty account for 16.1% of variation in real gasoline prices and for 4.9% of variation in gasoline consumption in the long-run.     

The responsiveness of fuel demand to gasoline price change in passenger transport: a case study of Saudi Arabia

Empirical estimates of fuel demand changes to price variation are based on historical consumption and prices, and can be applied as a single point estimate to a wide range of price movements. However, if fuel prices are set outside the boundaries of historical changes, policymakers may be concerned as to the validity of the empirically assessed price elasticity. We developed a transport model to provide a techno-economic estimate of the long-run price elasticity of fuel demand. It incorporates consumers’ choices as a result of several factors, including fuel substitutes, available transport modes, income, value of time and magnitude of price change. Our findings from the application of this transport model to Saudi Arabia show that policymakers can have confidence that the empirical estimates are broadly valid, even for large changes and if prices move outside historical variations. In general, gasoline demand in Saudi Arabia is price inelastic due to the lack of fuel and modal substitutes. However, our approach suggests that the response may become more pronounced when the magnitude of the change increases. The long-run cross-price elasticity of diesel is not constant. Demand for diesel will increase if gasoline price is raised significantly. The change in jet-fuel use is negligible.     

On dynamic linkages of the state natural gas markets in the USA: Evidence from an empirical spatio-temporal network quantile analysis

We empirically investigate the dynamic linkages of the state-level natural gas markets in the USA. By introducing a novel spatio-temporal network quantile econometric model, we can estimate the dynamic cross-state dependency or market integration of the state-level natural gas markets and the dependence of the state natural gas markets on the national crude oil market at different quantile levels. We find that significant local dynamic neighbouring market integrations exist in the natural gas markets not only in the eastern and central states as evidenced in the literature but also in some western and southwest states. Our results also show that there are significant linkages of the state-level natural gas markets to the national crude oil market through the lagged price shocks and the long-run price equilibrium with the national gas markets under varying price shock propagations. The results can help local government and energy users to mitigate the negative impacts from the expected or unexpected fluctuations in the oil and the neighbouring natural gas markets, which will enact appropriate state-level price discovery and energy policy and investment decision makings.     

Gasoline demand in Saudi Arabia: are the price and income elasticities constant?

ABSTRACT

The paper investigates gasoline consumption in case of oil-exporting country applying Time-varying Coefficient Cointegration approach to the data from 1980 to 2017. Empirical estimations show that long-run income and price elasticities are not constant and are responsive to price and income fluctuations in the period considered. The income elasticity of gasoline demand increased until 2014, peaking at 0.151, following growth in disposable income, before declining to 0.136 in 2017. However, consumers do not stop driving when their disposable incomes fall, resulting in a less elastic response of gasoline demand to income. Price elasticities sit in the range of ?0.31 to ?0.05, becoming less elastic when prices are low and vice versa.

The findings of the study may be useful in successful implementation of energy price reforms and implementation of environmental policies.     

The demand for transport fuels in Turkey

In this paper, we estimate the demand for transport fuels in Turkey. Specifically, using four different models, namely a partial adjustment model, a distributed lag model, an autoregressive distributed lag model, and an error correction model, we estimate gasoline and diesel demand functions with quarterly data covering the period 2003:Q1–2014:Q3. We find a stable long-run relationship only for diesel demand, income and price. Our results imply that gasoline demand does not respond to income and price in the long run, reflecting a shift from gasoline towards diesel induced by differential tax policies. Furthermore, we find that transport fuel demand is price inelastic, making tax on fuel a perfect tool for raising budget revenues. In addition, our results suggest that fuel demand responds to negative and positive price changes symmetrically.     

Flex-fuel vehicle adoption and dynamics of ethanol prices: lessons from Brazil

Focusing on dynamics of the relative prices of substitute fuels, namely ethanol and gasoline, this study quantifies the impact of the increase in shares of flex-fuel vehicles (FFVs) in the vehicle fleet on the domestic ethanol prices in Brazil. A modified partial adjustment model is employed. Estimation results provide strong support for our research hypotheses: (i) when consumers can choose between the fuels the relative ethanol and gasoline prices converge to a long-run equilibrium level, which is determined by the fuel economy, and (ii) price dynamics are largely determined by market supply and demand factors including the price of sugar, ethanol exports, and composition of vehicle fleet. Furthermore, the impacts of demand factors such as ethanol exports are strengthened by the increasing proportion of FFVs in the vehicle fleet.     

An analysis of gasoline demand elasticities at the national and local levels in Mexico

The majority of evidence on gasoline demand elasticities is derived from models based on national data. Since the largest growth in population is now taking place in cities in the developing world it is important that we understand whether this national evidence is applicable to demand conditions at the local level. The aim of this paper is to estimate and compare gasoline per vehicle demand elasticities at the national and local levels in Mexico. National elasticities with respect to price, income, vehicle stock and metro fares are estimated using both a time series cointegration model and a panel GMM model for Mexican states. Estimates for Mexico City are derived by modifying national estimates according to mode shares as suggested by Graham and Glaister (2006), and by estimating a panel Within Groups model with data aggregated by borough. Although all models agree on the sign of the elasticities the magnitudes differ greatly. Elasticities change over time and differ between the national and local levels, with smaller price responses in Mexico City. In general, price elasticities are smaller than those reported in the gasoline demand surveys, a pattern previously found in developing countries. The fact that income and vehicle stock elasticities increase over time may suggest that vehicles are being used more intensively in recent years and that Mexico City residents are purchasing larger vehicles. Elasticities with respect to metro fares are negligible, which suggests little substitution between modes. Finally, the fact that fuel efficiency elasticities are smaller than vehicle stock elasticities suggests that vehicle stock size, rather than its composition, has a larger impact on gasoline consumption in Mexico City.     

Rockets and feathers meet Joseph: Reinvestigating the oil–gasoline asymmetry on the international markets

We reinvestigate the “rockets and feathers” effect between retail gasoline and crude oil prices in a new framework of fractional integration, long-term memory and borderline (non)stationarity. The most frequently used error-correction model is examined in detail and we find that the prices return to their equilibrium value much more slowly than would be typical for the error-correction model. Such dynamics is usually referred to as “the Joseph effect”. The standard procedure is shown to be troublesome and we introduce two new tests to investigate possible asymmetry in the price adjustment to equilibrium under these complicated time series characteristics. On the dataset of seven national gasoline prices, we find no statistically significant asymmetry. The proposed methodology is not limited to the gasoline and crude oil case but it can be utilized for any asymmetric adjustment analysis.     

An alternative semiparametric approach to the modelling of asymmetric gasoline price adjustment

In this paper we revisit the wholesale and retail gasoline price adjustments to fluctuations in the input cost prices for a monthly panel dataset of 48 US states over the period 1994 to 2011. In doing so, we employ for the first time in the empirical literature nonlinear semiparametric models with local Generalized Method of Moments (GMM) estimators. Our findings indicate that wholesale and retail gasoline prices adjust more rapidly in an upward than a downward direction, confirming the “rockets and feathers” hypothesis.     

The demand for gasoline: a comment on the cross-section analysis by Drollas

A recent article [1] used data for 1977 from different countries to estimate the long-run price elasticity of demand for gasoline. Some aspects can be criticized, particularly the interpretation of the results and the model used. An alternative is developed which accepts that the key factor influencing gasoline consumption is the stock of cars. However, energy use per car will vary depending on the size of the country and its average income and price of fuel. This model gives a non-linear equation which is estimated using the same data. All the coefficients are significant with the price elasticity being inelastic.     

Gasoline price and new vehicle fuel efficiency: Evidence from Canada

Using data on all new vehicles registered in Canada from 2000 to 2010, we estimate the elasticity of the fuel economy of the new vehicle stock with respect to gasoline price. We find that a 10% increase in gasoline price causes a 0.8% improvement in the fuel economy of new vehicles. However, we also show that consumers respond much more strongly to fuel taxes than to other components of the gasoline price. Finally, we provide evidence that consumers in dense urban areas are more responsive to changes in fuel prices than consumers living on the urban periphery.     

U.S. policies and middle distillate markets in transition

The large mid-distillate market encompassing home heating and diesel fuels is analyzed in terms of its growth, price inflation, and shifting regional and demand patterns. Annual stock movements from 1974 are correlated with energy and weather disruptions along with Federal Government policies. These suggest a delicate balance between insecure petroleum sources and inventory practices of the refiners which could easily lead to shortages in the near future. In the long-run, the distillates are tied to the production and profits of the larger gasoline market, where demand is expected to fall sharply.     

Do petrol prices increase faster than they fall in market disequilibria?

This paper tests the idea that petrol prices respond more quickly to price increases than to decreases. We show that the results previously documented in the literature for Australia are spurious due to failure to establish the stationarity property of the price series, and the co-integration relationship between retail and wholesale prices when neglecting to account for a regime shift in the data. Using a robust approach involving a threshold error correction model, we find little evidence to support the contention that retail petrol price reverts asymmetrically to long-run equilibrium. Asymmetric adjustments in retail prices are found only in four of the twenty-eight retail gas stations in Queensland. These results cast doubt on the previously reported pervasiveness of this asymmetric price response phenomenon in Australia. We further caution on erroneous inference with the use of weekly rather than daily data, and when failing to account for a regime shift in the data.     

Demand for gasoline is more price-inelastic than commonly thought

One of the most frequently examined statistical relationships in energy economics has been the price elasticity of gasoline demand. We conduct a quantitative survey of the estimates of elasticity reported for various countries around the world. Our meta-analysis indicates that the literature suffers from publication selection bias: insignificant or positive estimates of the price elasticity are rarely reported, although implausibly large negative estimates are reported regularly. In consequence, the average published estimates of both short- and long-run elasticities are exaggerated twofold. Using mixed-effects multilevel meta-regression, we show that after correction for publication bias the average long-run elasticity reaches ? 0.31 and the average short-run elasticity only ? 0.09.     

Ethanol demand in Brazil: Regional approach

Successive studies attempting to clarify national aspects of ethanol demand have assisted policy makers and producers in defining strategies, but little information is available on the dynamic of regional ethanol markets. This study aims to analyze the characteristics of ethanol demand at the regional level taking into account the peculiarities of the developed center-south and the developing north-northeast regions. Regional ethanol demand is evaluated based on a set of market variables that include ethanol price, consumer’s income, vehicle stock and prices of substitute fuels; i.e., gasoline and natural gas. A panel cointegration analysis with monthly observations from January 2003 to April 2010 is employed to estimate the long-run demand elasticity. The results reveal that the demand for ethanol in Brazil differs between regions. While in the center-south region the price elasticity for both ethanol and alternative fuels is high, consumption in the north-northeast is more sensitive to changes in the stock of the ethanol-powered fleet and income. These, among other evidences, suggest that the pattern of ethanol demand in the center-south region most closely resembles that in developed nations, while the pattern of demand in the north-northeast most closely resembles that in developing nations.