Foreign Exchange Shocks and Gasoline Consumption

36 Pages Posted: 12 Nov 2018 Last revised: 29 Oct 2019

See all articles by Hamed Ghoddusi

Hamed Ghoddusi

Economic Research Forum; California State Polytechnic University, San Luis Obispo

Mohammad Morovati

Khatam University

Nima Rafizadeh

HEC Montreal

Date Written: November 10, 2018

Abstract

In an open economy, the foreign exchange rate (FER) influences incentives for the cross-border shopping of gasoline as well as the opportunity cost of using vehicles and the relative attractiveness of home versus foreign travel. Using monthly regional-level data of gasoline consumption in Iran, we estimate the impact of exchange rate shocks (both in level and volatility) on gasoline demand. We find that positive exchange rate shocks have a negative impact on total gasoline consumption as well as on vehicle users' demand in both short-run and long-run. Furthermore, we find that in the periods that FER is less volatile, the responsiveness of gasoline demand to a change in FER is more pronounced.

Keywords: Foreign Exchange Rate, Exchange Rate Volatility, Gasoline Consumption, Elasticity of Demand, Panel Data Estimation

JEL Classification: C23, F31, Q41, R41

Suggested Citation

Ghoddusi, Hamed and Morovati, Mohammad and Rafizadeh, Nima, Foreign Exchange Shocks and Gasoline Consumption (November 10, 2018). Energy Economics, Vol. 84, 2019, Available at SSRN: https://ssrn.com/abstract=3270684 or http://dx.doi.org/10.2139/ssrn.3270684

Hamed Ghoddusi (Contact Author)

Economic Research Forum ( email )

Cairo
Egypt

California State Polytechnic University, San Luis Obispo ( email )

San Luis Obispo, CA 93407
United States

Mohammad Morovati

Khatam University ( email )

Tehran
Iran

Nima Rafizadeh

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

HOME PAGE: http://www.nimarafizadeh.com/

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