Research Article
The Role of Mediation in the Transmission of Gasoline Price Effects
Issue:
Volume 12, Issue 4, December 2023
Pages:
112-119
Received:
Oct. 19, 2023
Accepted:
Nov. 03, 2023
Published:
Nov. 11, 2023
DOI:
10.11648/j.eco.20231204.11
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Abstract: This analysis aims to investigate the direct and indirect effects of gasoline price increases on the economy. An observational study using monthly data for industrial production, employment, the consumer price index, personal consumption expenditures for services, the consumer price index for gasoline, and the effective federal funds rate for the U.S. from December 1966 through November of 2022 of indirect, direct, and causal effects. Structured equation modeling was used to examine direct and indirect effects. In contrast, impulse response functions with local projections were used to assess the causal nature of responses to a gasoline price impulse. The data is from two sources: the U. S. Bureau of Labor Statistics and FRED, the Federal Reserve Bank of St. Louis. The direct effects (standardized coefficients) of gasoline prices are 0.111 (z = 7.2) and -0046 (z = -0.2) for industrial production and employment models, respectively; the indirect effects are larger at 0.385 (z = 38.7) and 0.292 (z = 27.96). The causal effects show inflation, decreased employment, and industrial production following a gas price impulse. Following an effective federal funds rate impulse, there is no significant effect on employment or industrial production through 48 months, while the effect on the all-items consumer price index is a decrease in prices. The principal effects of an unexpected increase in gasoline prices are indirect, mediated through endogenous economic variables, while the direct effects are small. Gasoline price increases can create conditions associated with economic downturns, such as reduced employment and industrial production. The broad economic effects triggered by gasoline price increases complicate the policy considerations for those guiding the economy. They are complicated by the role of gasoline prices as an environmental policy variable.
Abstract: This analysis aims to investigate the direct and indirect effects of gasoline price increases on the economy. An observational study using monthly data for industrial production, employment, the consumer price index, personal consumption expenditures for services, the consumer price index for gasoline, and the effective federal funds rate for the U...
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