Working Paper: NBER ID: w22969
Authors: Michael Gelman; Yuriy Gorodnichenko; Shachar Kariv; Dmitri Koustas; Matthew D. Shapiro; Dan Silverman; Steven Tadelis
Abstract: 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.
Keywords: Consumer Spending; Gasoline Prices; Marginal Propensity to Consume
JEL Codes: E21; Q41; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| gasoline prices (L90) | consumer spending (D12) |
| gasoline price changes (Q31) | marginal propensity to consume (MPC) (E21) |
| falling oil prices (Q31) | US economy (O51) |
| gasoline price shocks (Q43) | consumer spending response (D12) |