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Transportation Oil Demand Consumer Preferences and Asymmetric Price Responses: Some UK Evidence

Author

Listed:
  • David C Broadstock

    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

  • Alan Collins

    (Department of Economics, University of Portsmouth)

  • Lester C Hunt

    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

Abstract

The aim of this paper is to (i) establish the role of asymmetric price decompositions in UK road transportation fuel demand, (ii) make explicit the impact of the underlying energy demand trend and (iii) disaggregate the estimation for gasoline and diesel demand as separate commodities. Dynamic UK transport oil demand functions are estimated using the Seemingly Unrelated Structural Time Series Model with decomposed prices to allow for asymmetric price responses. The importance of starting with a flexible modelling approach that incorporates both an underlying demand trend and asymmetric price response function is highlighted. Furthermore, these features can lead to different insights and policy implications than might arise from a model without them. As an example, a zero elasticity for a price-cut is found (for both gasoline and diesel) implying that price reductions do not induce demand for road transportation fuel in the UK. The paper illustrates the importance of joint modelling of gasoline and diesel demand incorporating both asymmetric price responses and stochastic underlying energy demand trends.

Suggested Citation

  • David C Broadstock & Alan Collins & Lester C Hunt, 2010. "Transportation Oil Demand Consumer Preferences and Asymmetric Price Responses: Some UK Evidence," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 126, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
    • Handle: RePEc:sur:seedps:126
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    File URL: https://repec.som.surrey.ac.uk/seeds/SEEDS126.pdf
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    Keywords

    Diesel; Asymmetry; Price; Underlying Energy Demand Trend (UEDT).;
    All these keywords.

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