The Response of Consumer Spending to Changes in Gasoline Prices
Matthew D. Shapiro
- American Economic Journal: Macroeconomics (Forthcoming)
This paper estimates how overall consumer spending responds to changes in
gasoline prices. It uses the differential impact across consumers of the sharp drop
in gasoline prices in 2014 for identification. This estimation strategy is
implemented using comprehensive, high-frequency transaction-level data for a
large panel of individuals. The average estimated marginal propensity to consume
(MPC) out of unanticipated, permanent shocks to income is approximately one.
This estimate accounts for the elasticity of demand for gasoline and potential slow
adjustment to changes in prices. The high MPC implies that changes in gasoline
prices have large aggregate effects.
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