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An Exploration of Australian Petrol Demand: Unobservable Habits, Irreversibility and Some Updated Estimates

Breunig, Robert; Gisz, Carol

Description

We explore a methodological improvement to the standard dynamic demand model for petrol - a general model which allows for slowly evolving, unobservable habits. If this habit formation model is correct, then standard estimation techniques produce inconsistent estimates. We find price elasticities of -0.13 (short-run) and -0.20 (long-run). Importantly, standard techniques are misleading about the precision of elasticity estimates and the confidence interval around the long-run price elasticity...[Show more]

CollectionsANU Research Publications
Date published: 2009
Type: Journal article
URI: http://hdl.handle.net/1885/26002
Source: The Economic Record
DOI: 10.1111/j.1475-4932.2008.00530.x

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