ON THE VARIABLE ELASTICITY OF THE DEMAND FOR GASOLINE - THE CASE OF THE USA

This paper tests the variable elasticity of the demand for gasoline by applying the well-known Box-Cox extended autoregressive (BCEA) model of Savin and White. This model can simultaneously test for functional form and autocorrelation in a time-series regression. Major findings are the log-linear form chosen a priori in most of previous studies can be rejected in favour of the BCEA model; long-run price elasticities varied from -1.118 in 1973 to -0.290 in 1981; and long-run income elasticities declined consistently from 0.944 in 1960 to 0.452 in 1985. These findings have policy implications for more accurate forecast of gasoline demand, gasoline taxes, energy conservation and others. © 1990.