Elasticities for gasoline and ethanol in State of São Paulo

Abstract

This paper analyzed and estimated short- and long-term price, income and cross-price elasticities of markets for type C gasoline and ethanol in São Paulo (January 2003 to December 2015). For elasticities calculation we have used the Akaike Information Criterion Corrected (AICC), Augmented Dickey-Fuller (ADF) unit root test, Engle-Granger cointegration test and Error Correction Model (ECM). Results showed that both short and long term elasticities for the gasoline market presented a significant change in coefficients, possibly due to the structural changes of Brazilian economy, and as a consequence of the introduction of flex fuel technology in cars. Also, the results showed more elastic coefficients for ethanol consumption model as compared to the gasoline demand model. Finally, there is asymmetry in the presence of gasoline and ethanol markets.