Academic journal article Monthly Labor Review

What Drives Gasoline Prices?

Academic journal article Monthly Labor Review

What Drives Gasoline Prices?

Article excerpt

As everyone knows, gasoline prices have been high in recent years. Most people also understand that the price of gasoline is closely linked to the price of oil. But occasionally, the two diverge. Gasoline prices were rising in the spring of 2007, while oil prices were falling. Later in the year, crude prices were back up, but gasoline prices did not change. So, one might ask, what is it--other than the price of crude oil--that drives U.S. gasoline prices? In the October issue of the Federal Reserve Bank of Dallas Economic Letter, Bank economists Stephen P.A. Brown and Raghav Virmani attempt to answer this question by examining several other factors that affect gasoline prices. They build a succession of econometric models to isolate and quantify the various factors.

The first model uses two factors--crude oil prices and gasoline prices--and the authors state that the "model explains nearly 98 percent of U.S. gasoline prices. …

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