Gasoline price volatility and the elasticity of demand for gasoline

- We examine how gasoline price volatility impacts gas price elasticity of demand.
- Volatility in prices decreases demand for gasoline in the intermediate run.
- Consumers are less responsive to gasoline price when price volatility is high.
- Models without control for volatility may overestimate elasticity in the long run.

We examine how gasoline price volatility impacts consumers' price elasticity of demand for gasoline. Results show that volatility in prices decreases consumer demand for gasoline in the intermediate run. We also find that consumers appear to be less elastic in response to changes in gasoline price when gasoline price volatility is medium or high, compared to when it is low. Moreover, we find that when we control for variance in our econometric model, gasoline price elasticity of demand is lower in magnitude in the long run.