Short-run and long-run elasticities of gasoline demand: The case of Korea

ABSTRACT: This paper investigates the demand function for gasoline in Korea using quarterly data covering the period 1991–2010. The long-run and short-run elasticities of demand with respect to gasoline price and national income are empirically examined using a co-integration and error correction model (ECM). Gasoline demand is relatively elastic to price and income change in both the long run and short run, and each elasticity is higher in the long run than in the short run. Moreover, gasoline demand response to price is higher than to income. This implies that a price demand-side management policy can be quite effective in Korea. Especially, the limitation of price change is important to the stabilization of gasoline demand.