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Do daily retail gasoline prices adjust asymmetrically?

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Author Info
L. Bettendorf
S. A. van der Geest
G. H. Kuper

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Abstract

This paper analyses adjustments in the Dutch retail gasoline prices. We estimate an error correction model on changes in the daily retail price for gasoline (taxes excluded) for the period 1996-2004, taking care of volatility clustering by estimating an EGARCH model. It turns out that the volatility process is asymmetrical: a positive shock to the retail price has a greater effect on the variance of the retail price than a negative shock. We conclude that the retail price and the spot price do not drift apart in the long run. However, there is a faster reaction to upward changes in spot prices than to downward changes in spot prices in the short run. This asymmetry starts 3 days after the change in the spot price and lasts for 4 days.

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File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/02664760802466468&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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Publisher Info
Article provided by Taylor and Francis Journals in its journal Journal of Applied Statistics.

Volume (Year): 36 (2009)
Issue (Month): 4 ()
Pages: 385-397
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Handle: RePEc:taf:japsta:v:36:y:2009:i:4:p:385-397

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Related research
Keywords: asymmetry; retail gasoline prices; volatility;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Castanias, Rick & Johnson, Herb, 1993. "Gas Wars: Retail Gasoline Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 171-74, February. [Downloadable!] (restricted)
  3. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 369-80, October.
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  4. Severin Borenstein & Andrea Shepard, 2002. "Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 116-139, Spring.
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  5. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct. [Downloadable!]
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  6. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May. [Downloadable!] (restricted)
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  9. Bettendorf, Leon & van der Geest, Stephanie A. & Varkevisser, Marco, 2003. "Price asymmetry in the Dutch retail gasoline market," Energy Economics, Elsevier, vol. 25(6), pages 669-689, November. [Downloadable!] (restricted)
  10. Davis, Michael C & Hamilton, James D, 2004. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 17-37, February.
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  11. Gannon, Gerard L., 1996. "First and second order inefficiency in Australasian currency markets," Pacific-Basin Finance Journal, Elsevier, vol. 4(2-3), pages 315-327, July. [Downloadable!] (restricted)
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  13. Matt Lewis, 2004. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Industrial Organization 0407010, EconWPA. [Downloadable!]
  14. Lance J. Bachmeier & James M. Griffin, 2003. "New Evidence on Asymmetric Gasoline Price Responses," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 772-776, 05. [Downloadable!] (restricted)
  15. Michael Noel, 2004. "Edgeworth Price Cycles: Evidence from the Toronto Retail Gasoline Market," University of California at San Diego, Economics Working Paper Series 2004-03, Department of Economics, UC San Diego. [Downloadable!]
  16. Robert Engle, 2004. "Risk and Volatility: Econometric Models and Financial Practice," American Economic Review, American Economic Association, vol. 94(3), pages 405-420, June. [Downloadable!]
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  17. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July. [Downloadable!] (restricted)
  18. Eckert, Andrew & West, Douglas S, 2004. "Retail Gasoline Price Cycles across Spatially Dispersed Gasoline Stations," Journal of Law & Economics, University of Chicago Press, vol. 47(1), pages 245-73, April.
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  21. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec.. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Leo de Haan & Elmer Sterken, 2005. "Asymmetric Price Adjustment in the Dutch Mortgage Market," DNB Working Papers 061, Netherlands Central Bank, Research Department. [Downloadable!]
  2. Riemer P. Faber & Maarten C.W. Janssen, 2008. "On the Effects of Suggested Prices in Gasoline Markets," Tinbergen Institute Discussion Papers 08-116/1, Tinbergen Institute. [Downloadable!]
  3. Oystein Foros & Frode Steen, 2008. "Gasoline Prices Jump Up on Mondays: An Outcome of Aggressive Competition?," Working Papers 08-20, Centre for Competition Policy, University of East Anglia. [Downloadable!]
    Other versions:
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