Gasoline Demand in Greece: The Importance of Shifts in the Underlying Energy Demand Trend

Abstract

This paper explores the relative importance of factors other than price and income in explaining gasoline demand in Greece between 1978 and 2008. Using a structural time series model (STSM) the long-run elasticities of income and price are 0.45 and −0.32, respectively. Further, it is shown using the estimated underlying energy demand trend (UEDT) that other exogenous factors have been shifting the gasoline demand curve to the right, thus reflecting more energy-intensive lifestyles in Greece. Given the results, it is contended that the kinds of policies that governments can use to manage gasoline demand and move toward sustainable transportation go beyond the usual price mechanism.

Keywords:

• household car use
• motor-gasoline demand
• sustainable transportation
• underlying energy demand trend

Notes

¹The environmental challenges associated with carbon dioxide emissions are well documented by the Intergovernmental Panel on Climate Change (IPCC) with regard to the rising temperature of the earth caused by anthropogenic greenhouse gases, of which carbon dioxide is a major contributor.

²For example, if the time-varying intercept contains multiple turning points, an additional polynomial term may be required to capture each.

³This is restricted to first order on the basis of available observations; given more data it would be preferable to start with a higher order, perhaps four years. Also it would be desirable to consider potential distributed lag effects; again, the sample-size limitations preclude this.

⁴We are extremely grateful to an anonymous referee for encouraging us to consider this point further. This implies a need to consider more nonlinear specifications in future related research. Nonparametric procedures may be an interesting way to embed such nonlinearities.

⁵In attempting to understand why the estimated short-run price elasticities are so low, the observed nonlinearities in the underlying energy demand trend, though subtle, may partly explain the results. Hitherto-used linear trend specifications (e.g., Polemis [2006]) may fail to adequately capture the dynamics of the trend, leading to possible mis-specification bias in the price and income elasticities. It is further noted that the long-run elasticities are much larger, implying that Greek consumers are inelastic in the short run to changes in price (and income) and take time to adjust to their new equilibrium consumption level.

Color versions of one or more of the figures in the article can be found online at www.tandfonline.com/ujst.