NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Response of Consumer Spending to Changes in Gasoline Prices

Michael Gelman, Yuriy Gorodnichenko, Shachar Kariv, Dmitri Koustas, Matthew D. Shapiro, Dan Silverman, Steven Tadelis

NBER Working Paper No. 22969
Issued in December 2016
NBER Program(s):   EEE   EFG   ME   PR

This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sudden, large drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, daily transaction-level data for a large panel of individuals. The estimated marginal propensity to consume (MPC) is approximately one, a higher estimate than estimates found in less comprehensive or well-measured data. This estimate takes into account the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects.

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Document Object Identifier (DOI): 10.3386/w22969

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