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U.S. oil demand and conservation

  • Economics


U.S. Oil Demand and Conservation No. 9005 U.S. OIL DEMAND AND CONSERVATION by S.P.A. Brown* and Keith R. Phillips* February 1990 Research Paper Federal Reserve Bank. of Dallas This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library ([email protected]) i lo .9005 U.S. OIt DEIIAND AilD COIISERVATIOI{ by S.P.A. Brown* and Kei th R. Ph i l l i ps* February 1990 *Ass is tan t V jce Pres ident & Sen ior Economis t and Economis t respec t ive ly , Federa l Reserve Bank o f Da l Ias . The v iews exoressed in th is a r t ' i c le a re so le ly those o f the au thors and shou ld no t be 'a t t r ibu ted to the Federa l Reserve Bank of Dallas or to the Federal Reserve System. U.S. OIL DE]iIAI{D AND COI{SERVATION S. P . A . Brown and Ke i th R. Ph i l l i ps* Recent history has lent casual support to three popular theories about U,S. o i l demand: U,S. o j l consumpt ion is very insens i t i ve to chang ing o i l p r i ces ; non-pr ice conserva t ion has reduced U,S. o i l demand; and U.S. o i l consumpt ion fa l l s more when o i l p r i ces r i se than i t r i ses when pr ices fa1 l . Together these theories suggest that oi l consumption could be held constant without much economic sacri f ice. Our econonetr ic evidence does not support these theor ies , l le f jnd tha t U.S. o i1 consumpt ion is fa i r l y respons ive to changes in p r ice over the long run , bu t w i th a cons iderab le 1ag. The lag accounts for the data that seems to support the popular theories. Sharp oi1 pr ice inc reases (o r the i r equ iva len t ) w i l l be requ i red to ho ld o i l consumpt ion cons tan t dur ing the I990s . I. IilTRODUCTION Recent growth of U.S. energy consumption has renewed concerns about energy secur i ty , the t rade de f ic i t , and the env i ronment ; rev iv ing ca l l s fo r en

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