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EMF OP 66: Short- and Long-Run Adjustments in U.S. Petroleum Consumption

Long-run adjustments in petroleum consumption are not only larger than short-run adjustments. They may also be motivated by entirely different price events. This analysis shows that new price peaks have both short-run and long-run consumption responses, a result that is starkly different than price changes that track previous price paths. It also establishes significant trend effects where gasoline and residual fuel oil consumption decline over time. The analysis explores these adjustments by establishing long-run cointegrating relationships for different petroleum product groupings. An important implication is that price increases above historical levels may be providing substantially greater incentives for significant long-run demand adjustments than would be the case otherwise.