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Retail Fuel Price Response to Oil Price Shocks in EU Countries

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  • Sofronis Clerides

    ()
    (Department of Economics, University of Cyprus)

Abstract

There is a widely held belief that retail fuel prices rise very quickly following an increase in international oil prices but fall slowly when oil prices decrease. This study uses data from European Union countries to investigate the response of retail gasoline prices to changes in the world oil price. The findings indicate significant variation in the adjustment mechanism across countries. Fluctuations in the international price of oil are transported to local prices with some delay but evidence of asymmetric adjustment is fairly weak. Statistically significant evidence of asymmetric responses is only found in a small number of countries, while in some countries there is even (weak) evidence of asymmetry in the reverse direction: prices drop faster than they rise. For the case of Cyprus our estimates show that prices adjust somewhat faster to an increase in the international price than they do to a decrease, but the difference is neither statistically significant nor substantial in terms of economic consequences

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File URL: http://www.ucy.ac.cy/erc/documents/Clerides_Full_Text.010.pdf
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Bibliographic Info

Article provided by University of Cyprus, Economics Research Centre in its journal Cyprus Economic Policy Review.

Volume (Year): 4 (2010)
Issue (Month): 1 (June)
Pages: 25-45

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Handle: RePEc:erc:cypepr:v:4:y:2010:i:1:p:25-45

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Related research

Keywords: asymmetric price response; rockets and feathers; retail fuel prices;

References

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  1. Duffy-Deno, Kevin T., 1996. "Retail price asymmetries in local gasoline markets," Energy Economics, Elsevier, Elsevier, vol. 18(1-2), pages 81-92, April.
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Cited by:
  1. Polemis, Michael L. & Fotis, Panagiotis N., 2013. "Do gasoline prices respond asymmetrically in the euro zone area? Evidence from cointegrated panel data analysis," Energy Policy, Elsevier, Elsevier, vol. 56(C), pages 425-433.
  2. Katarzyna Leszkiewicz-Kędzior & Aleksander Welfe, 2014. "Asymmetric Price Adjustments in the Fuel Market," Central European Journal of Economic Modelling and Econometrics, CEJEME, CEJEME, vol. 6(2), pages 105-127, June.
  3. Tiwari, Aviral Kumar & Mutascu, Mihai Ioan & Albulescu, Claudiu Tiberiu, 2013. "The influence of the international oil prices on the real effective exchange rate in Romania in a wavelet transform framework," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 714-733.
  4. Polemis, Michail & Fotis, Panagiotis, 2011. "The gasoline Industry in European Union and the USA," MPRA Paper 35097, University Library of Munich, Germany.

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