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

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.

Related

Topics

Macroeconomics
Consumption and Investment
Environmental and Resource Economics
Energy

Programs

Environment and Energy Economics
Economic Fluctuations and Growth
Monetary Economics
Productivity, Innovation, and Entrepreneurship

Mentioned in the News

Rocketing Gas Prices Hurt Consumers - Study Shows How Much
Source: Forbes
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