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, Revised in November 2017
NBER Program(s):Environment and Energy Economics, Economic Fluctuations and Growth, Monetary Economics, Productivity, Innovation, and Entrepreneurship

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, high-frequency transaction-level data for a large panel of individuals. The estimated marginal propensity to consume (MPC) out of unanticipated, permanent shocks to income is approximately one. 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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