Causality analysis among gasoline demand, price, and consumption expenditure in Japan: Past 20 years experience

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Abstract:

It is crucial to reduce automobile’s gasoline consumption so as to mitigate climate change. However, only few studies which focus on the relation among gasoline demand, its price and private final consumption expenditure can be found. In this context, while taking into account the stationarity and cointegration of variables, this study investigated Granger causality by using vector error correction (VEC) model, based on a quarterly time-series data during 1994-2012 in Japan. As a result, this study shows that there are bidirectional causalities between gasoline price and its consumption: positive (+0.98～+1.32) from consumption to price and negative (-0.13) from price to consumption. It is also found that there is a unidirectional positive causality (+0.81) from private consumption expenditure to gasoline consumption. These causalities and feed-back mechanism should be taken into account when considering automobile fuel taxation.