# Presentation: 694088

## Motor Gasoline Model:Major Developments and Issues

- Short-Run Motor Gasoline Demand Model
- EIA Energy Outlook,
- Modeling and Data Conference
- March 28, 2007
- Washington, DC
- Michael A. Morris
- Industry Economist

## Price Elasticity

- Range of estimates
- Most short-run estimates are between zero and -0.5
- Most long-run estimates are between -0.5 and -1.5
- Decline in price responses
- EIA short-run estimates:
- 1977 to 1989:  -0.05 to -0.08
- 1994 to 2006:  -0.02 to -0.04

## Income Elasticity

- Most estimates are between 0.2 and 1.5
- Estimates have declined over time
- EIA:
- 1977 to 1989:     .85
- 1994 to 2006:     .50

## Possible Reasons for Elasticity Declines

- Motor vehicle travel is a mature product
- Fuel efficiencies have increased
- Real cost per mile is lower
- Gasoline’s share of disposable income has declined

## Growth in Vehicles per 1000 People Has Slowed Sharply 

## Ratio of Passenger VMT to Real Personal Disposable Income (1966=1)

## Motor Gasoline Vehicle Fuel Efficiency

## Inflation-Adjusted Motor Gasoline Cost per Mile (1982-84 $)

## Motor Gasoline Expenditures as a Share of Personal Disposable Income 

## Short-Term Energy Outlook Motor Gasoline Model

- 	Total motor gasoline demand =
- 		Highway demand     +    Non-highway demand
- 	Highway demand accounts for 97 percent of total motor gasoline demand.  It is derived from the following identity:
- 		Highway Demand  =   _Highway Travel_
- 			                          Fuel Efficiency
- 	Each component is estimated separately.

## Highway Motor Gasoline Demand is Highly Seasonal

## Highway Motor Gasoline Demand Is Becoming Less Seasonal 

## Seasonally-Adjusted  Per-Capita  Motor Gasoline-Related Vehicle Miles Traveled Per Day

- Dependent Variable:		LOG(MVMGPUS_SA/POP)
- Estimation Interval 		1994:01 to 2006:12
**	**_**Variable**_**	****	****            **_**Coefficient**_**      **_**Std. Error**_**      **_**t-Statistic**_
- C			     	  1.594	     0.035         45.164
**LOG(YD87OUS/POP)****	****    ****	****  0.500****	****     0.012         40.440      (Per Capita RDI)**
**LOG(CPMMG_SA) ****	****   ****	**** -0.018****	****     0.006          -2.967      (Real Cost Per Mile)**
- DGT250		   	 -0.013	     0.005          -2.587      (= 1 if Reg. Gr. $/gal > 2.50)
- DGT275		   	 -0.007	     0.007          -1.052      (= 1 if Reg. Gr. $/gal > 2.75)
- LOG(ZWHDDUS1/ZSAJQUS)	 	 -0.003	     0.001          -3.835      (Asymmetric Weather Var.)
- D9401			 	 -0.035	     0.010          -3.401      (Severe Weather)
- D9602			 	 -0.042	     0.010          -4.332      (Severe Weather)
- D9901			 	 -0.033	     0.010          -3.409      (Severe Weather)
- D0109			 	 -0.030	     0.010          -3.096      (9/11 Impact)
**R-squared****	****     ****	****0.948 **
**Durbin-Watson stat         ****	****1.617**

## Seasonally-Adjusted Log Per-Capita Motor Gasoline-Related  Vehicle Miles Traveled Per Day

## Seasonally-Adjusted Per-Capita Motor Gasoline-Related Vehicle Miles Traveled Per Day (Alternative estimation with lagged dependent variable)

- Dependent Variable:		LOG(MVMGPUS_SA/POP)
- Estimation Interval: 		1994:02 to 2006:12
- 	_**Variable Name**_**	****	****              **_**Coefficient**_**       **_**Std. Error**_**      **_**t-Statistic**_**	**
- C			                  1.229                0.107            11.516
**LOG(MVMGPUS_SA(-1)/POP(-1))            0.231               0.064              3.630   (Lagged Dep. Var.)**
**LOG(YD87OUS/POP)****	****                   0.386               0.034            11.243   (Per Capita RDI) **
**LOG(CPMMG_SA)****	****                  -0.021               0.005             -3.758   (Real Cost per Mile)**
- DGT275		                  -0.013               0.006             -2.199   (= 1 if Reg. Gr. $/Gal >2.75)
- LOG(ZWHDDUS1/ZSAJQUS)                   -0.003               0.001             -3.480   (Asymmetrical HDD Variable)
- D9602			                  -0.040	      0.009             -4.190   HDD Variable
- D9901			                  -0.036	      0.010             -3.761   HDD Variable
- D0109			                  -0.028	      0.009             -2.950   (9/11 Effect)
**R-squared****	****	****0.948****	**
**Durbin-Watson stat****	****2.089**

## 		           Results Using a Lagged-Dependent Variable in the VMT Equation			Partial Adjustment Hypothesis									log (VMT/POP) t – log (VMT/POP) t-1 = λ (log (VMT*/POP) t – log (VMT/POP)) t-1 	                           	where 0 < λ < 1 and  VMT* =  desired (target) level of vehicle travellog (VMT/POP) t = λά + (1 - λ) log (VMT/POP) t-1+ λβ log (Y/POP)t + λγ log CPM t               											          Adjustment Coefficient  =  λ  =  .769			                Average lag  =    λ / (1 - λ)  =  3.32 months 								       Elasticity  Estimates							    		     				     	    Income             Price		Short Run	  λβ (.386)        λγ (-0.021)     		Long Run	   β  (.502)         γ  (-0.027)                         	         		         

## Seasonally-Adjusted Motor Gasoline-Related Fuel Efficiencies

- Dependent Variable: 		MPGMG_SA
- Estimation Interval 		1994:01 to 2006:12
_**Variable**_**	****	****          **_**Coefficient**_**       **_**Std. Error    **_**    **_**t-Statistic**_
- C			              16.231             0.221	         73.428
- TIME			                0.012             0.001	         14.756         (Time Trend)
- MGRARUS_SA/CICPIUS	                0.005             0.002	           2.338         (Real Reg Gr. $/gal)
- EOTCPUS_SA/MGTCPUS_SA        -34.264             6.000               -5.711         (Ethanol Share)
- ZWHDDUS1/ZSAJQUS	               -0.149             0.029               -5.232         (Asym.  HDD Var.)
- D9602			               -0.961             0.234               -4.106         (Severe Weather)
- D9901			               -0.398             0.235               -1.693         (Severe Weather)
- D9912	 	   	               -0.940             0.234               -4.019         (Y2K Shift)
- D0001	 		                0.621             0.233                2.661         (Y2K Shift)
- D0109	 		               -0.388             0.234               -1.657         (9/11 Impact)
**R-squared****	****	****0.769**
**Durbin-Watson stat****	****2.011**

## Seasonally-Adjusted Motor Gasoline-Related Fuel Efficiencies

## Future Modeling Issues

- Future Modeling Issues

- Asymmetrical Demand Reponses to Price Changes
- Price Shocks
- Seasonal Differences in Demand Behavior
- Co-integration Techniques

## Thank You

- Energy Information Administration
- www.eia.doe.gov
- Michael Morris
- michael.morris@eia.doe.gov
- 202-586-1199