The demand for gasoline: a two stage approach

The demand for gasoline has typically been estimated using a reduced-form equation model. The simplicity of the approach is attractive, but has proven to be costly in terms of the insights lost as to the nature of the processes governing the interdependence between fuel efficiency and the overall de...

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Bibliographic Details
Published in:International journal of forecasting 1993, Vol.9 (4), p.457-465
Main Authors: Elkhafif, M.A., Kubursi, A.A.
Format: Article
Language:English
Subjects:
Demand analysis
Demand for gasoline
Economic forecasting
Economic models
Energy efficiency
Fuel efficiency
Gasoline
Gasoline forecasting model
Price elasticity
Regression analysis
Studies
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Summary:The demand for gasoline has typically been estimated using a reduced-form equation model. The simplicity of the approach is attractive, but has proven to be costly in terms of the insights lost as to the nature of the processes governing the interdependence between fuel efficiency and the overall demand for gasoline. On the other hand, disaggregating the overall demand for gasoline into all of its components produces an enormous amount of detail and many insights, but increases commensurately the complexity of the system and reduces its usefulness in forecasting. A two stage simple demand equation is used which first involves an estimation of the level of fuel efficiency of the fleet stock in terms of price induced technical change. In the second stage, the first equation is coupled with other typical demand variables to determine the overall demand for gasoline. The procedure provides an excellent forecasting equation of both the short-and long-term demand for gasoline.
ISSN:0169-2070
1872-8200
DOI:10.1016/0169-2070(93)90073-V