Down the non-linear road from oil to consumer energy prices: no much asymmetry along the way
AbstractIn the past decade changes in oil prices have played a significant role in shaping inflation dynamics in the US and in the euro area, largely through their direct effect on fuels prices, reviving the controversy over whether the prices of petroleum products respond more promptly to positive than to negative oil price shocks. This paper provides fresh evidence on this issue for the US, the euro area and the four largest euro area countries (Germany, France, Italy and Spain), both for petrol and diesel prices. Inference is based on the dynamic response of downstream prices to upstream shocks, rather than on tests on the regression slopes as in the majority of existing studies, taking into account the non-linearity of the impulse response function in models with asymmetric adjustment, so far ignored in this literature. The empirical analysis shows that fuels prices respond very promptly to oil price shocks, with some heterogeneity across countries, and that no systematic evidence of asymmetries emerges. This result is robust across periods of high and low oil price volatility and holds both for standard and large shocks.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 751.
Date of creation: Mar 2010
Date of revision:
energy; oil prices; asymmetry; inflation;
Find related papers by JEL classification:
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-EEC-2010-04-17 (European Economics)
- NEP-ENE-2010-04-17 (Energy Economics)
- NEP-OPM-2010-04-17 (Open Economy Macroeconomic)
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- Lorenzo Forni & Andrea Gerali & Alessandro Notarpietro & Massimiliano Pisani, 2012. "Euro area and global oil shocks: an empirical model-based analysis," Temi di discussione (Economic working papers) 873, Bank of Italy, Economic Research and International Relations Area.
- Mario Porqueddu & Fabrizio Venditti, 2012. "Do food commodity prices have asymmetric effects on Euro-Area inflation?," Temi di discussione (Economic working papers) 878, Bank of Italy, Economic Research and International Relations Area.
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