Journal Article

The Price of Gasoline and New Vehicle Fuel Economy: Evidence from Monthly Sales Data

Apr 1, 2010 | Thomas Klier, Joshua Linn


This paper uses a unique data set of monthly new vehicle sales by detailed model from 1970-2007, and implements a new identification strategy to estimate the effect of gasoline prices on new vehicle demand. We control for unobserved vehicle and consumer characteristics by using within model-year changes in gasoline prices and vehicle sales. We find a significant demand response, as nearly half of the decline in market share of U.S. manufacturers from 2002-2007 was due to the increase in gasoline prices. On the other hand, a gasoline tax increase would have a modest effect on average fuel efficiency.