Gasoline price predictability in a border metropolitan economy

Abstract

This study examines the predictability of local retail gasoline prices in the El Paso metropolitan economy. Given its location on the border with Mexico, the potential influence of cross-border economic variables on gasoline prices in El Paso is taken into account. The study uses monthly frequency time series data from 2001 to 2013. Because historical consumption data are not available, the error correction econometric model employs a reduced form equation in which gasoline prices are functionally dependent on several explanatory variables. Out-of-sample price simulations are compared against random walk and random walk with drift benchmarks. Results obtained indicate that the econometric approach performs fairly well relative to both benchmarks.

Keywords:

• border economics
• gasoline price forecasts
• applied econometrics

JEL Classification:

• F15
• M21
• Q47

Acknowledgement

Econometric research assistance was provided by Alejandro Ceballos and Juan Cárdenas.

Additional information

Funding

Financial support for this research was provided by El Paso Water Utilities, Hunt Communities, City of El Paso Office of Management & Budget, the James Foundation Scholarship Fund, the UTEP Center for the Study of Western Hemispheric Trade, the Hunt Institute for Global Competiveness and a UTEP College of Business Administration Faculty Support Research Grant.