The Response of Consumer Spending to Changes in Gasoline Prices
- (pp. 129-60)
Abstract
This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sharp 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 average estimated marginal propensity to consume (MPC) out of unanticipated, permanent shocks to income is approximately one. This estimate accounts for 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.Citation
Gelman, Michael, Yuriy Gorodnichenko, Shachar Kariv, Dmitri Koustas, Matthew D. Shapiro, Dan Silverman, and Steven Tadelis. 2023. "The Response of Consumer Spending to Changes in Gasoline Prices." American Economic Journal: Macroeconomics, 15 (2): 129-60. DOI: 10.1257/mac.20210024Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
- L81 Retail and Wholesale Trade; e-Commerce
- Q35 Hydrocarbon Resources
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