Econometric Modeling of Gasoline Consumption: A Cointegration Analysis

Abstract

This article applies econometric models to investigate determinants of gasoline consumption (GC) in postwar Lebanon (1993–1999). The impact of gasoline price (P) and car registration (CR) on gasoline consumption is investigated through three models, namely, the static, autoregressive, and partial adjustment models. Analysis results showed the statistical significance of the price, at the 10% level, in affecting gasoline consumption and the insignificance of the car registration time series. Furthermore, given that regression models may produce spurious results, if time series are non-stationary, the GC, P, and CR were tested for order of integration using the Dickey-Fuller (DF) and the augmented Dickey-Fuller (ADF) tests. Cointegration analysis, using the Johansen and the Engle and Yoo test methods, revealed the existence of a long-run relationship between all variables. Moreover, an error correction model is developed to predict short-run dynamics. Finally, statistical performance measures, such as mean square error, mean average deviation, and mean average percentage error, are presented for all models.

Keywords:

• cointegration analysis
• energy forecasting

Notes

^a Denotes significance at 5% level.

^b Denotes significance at 1% level.

^a Denotes rejection of the hypothesis at 5% significance level.

^b Denotes rejection of the hypothesis at 1% significance level.