Transportation oil demand, consumer preferences and asymmetric prices | Zendy

David C. Broadstock | Zendy; Alan Collins | Zendy; Lester C. Hunt | Zendy

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Transportation oil demand, consumer preferences and asymmetric prices

Author(s) -

David C. Broadstock,

Alan Collins,

Lester C. Hunt

Publication year - 2011

Publication title -

journal of economic studies

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.558

H-Index - 43

eISSN - 1758-7387

pISSN - 0144-3585

DOI - 10.1108/01443581111161797

Subject(s) - economics , price elasticity of demand , gasoline , demand curve , diesel fuel , dynamic demand , econometrics , microeconomics , derived demand , demand shock , market demand schedule , supply and demand , demand management , macroeconomics , engineering , power (physics) , physics , quantum mechanics , waste management

Purpose

The aim of this paper is to establish the role of asymmetric price decompositions in UK road transportation fuel demand, make explicit the impact of the underlying energy demand trend, and disaggregate the estimation for gasoline and diesel demand as separate commodities.

Design/methodology/approach

Dynamic UK transport oil demand functions are estimated using the Seemingly Unrelated Structural Time Series Model with decomposed prices to allow for asymmetric price responses.

Findings

The importance of starting with a flexible modelling approach that incorporates both an underlying demand trend and asymmetric price response function is highlighted. Furthermore, these features can lead to different insights and policy implications than might arise from a model without them. As an example, a zero elasticity for a price-cut is found (for both gasoline and diesel), implying that price reductions do not induce demand for road transportation fuel in the UK.

Originality/value

The paper illustrates the importance of joint modelling of gasoline and diesel demand incorporating both asymmetric price responses and stochastic underlying energy demand trends.

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