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Testing the law of one-price in the US gasoline market: a long memory approach

Author

Listed:
  • Marco R. Barassi

    (University of Birmingham)

  • Gianluigi De Pascale

    (Università degli Studi di Foggia)

  • Raffaele Lagravinese

    (Università degli Studi di Bari "Aldo Moro")

Abstract

This paper aims to shed new light on †law of one-price†in the United States' gasoline market over the period June-2003-December-2019. Specifically, we test for convergence of the retail prices of gasoline in different US PADDs, states and cities using the Local Whittle estimator (LW) and its variants (Robinson 1995, Shimotsu and Phillips 2005). Mean/trend reversion of the relative price of each unit will imply convergence toward the average price in the US thereby offering support for the law of one-price. LW estimators allow us to consider the case where relative gasoline price are fractionally integrated process and may display long memory implying a slow process of convergence. The results obtained generally offer support for the law of one-price albeit with significant differences in the rate of convergence between PADDs, States and Cities.

Suggested Citation

  • Marco R. Barassi & Gianluigi De Pascale & Raffaele Lagravinese, 2021. "Testing the law of one-price in the US gasoline market: a long memory approach," SERIES 03-2021, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Jun 2021.
    • Handle: RePEc:bai:series:series_wp_03-2021
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Gasoline price; Convergence; Fractional integration; Whittle estimator;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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