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Econometric Models of Asymmetric Price Transmission

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Author Info
Matteo Manera (University of Milan-Bicocca and Fondazione Eni Enrico Mattei)
Giliola Frey (Fondazione Eni Enrico Mattei)

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Abstract

In this paper we review the existing empirical literature on price asymmetries in commodities, providing a way to classify and compare different studies which are highly heterogeneous in terms of econometric models, type of asymmetries and empirical findings. Relative to the previous literature, this paper is novel in several respects. First, it presents a detailed and updated survey of the existing empirical contributions on the existence of price asymmetries in the transmission mechanism linking input prices to output prices. Second, this paper presents an extension of the traditional distinction between long-run and short-run asymmetries to new categories of asymmetries, such as: contemporaneous impact, distributed lag effect, cumulated impact, reaction time, equilibrium and momentum equilibrium adjustment path, regime effect, regime equilibrium adjustment path. Third, each empirical study is critically discussed in the light of this new classification of asymmetries. Fourth, this paper evaluates the relative merits of the most popular econometric models for price asymmetries, namely autoregressive distributed lags, partial adjustments, error correction models, regime switching and vector autoregressive models.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2005.100.

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Date of creation: Sep 2005
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Handle: RePEc:fem:femwpa:2005.100

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Related research
Keywords: Price asymmetries; Cointegration; Partial adjustment; Threshold regime switching;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
D40 - Microeconomics - - Market Structure and Pricing - - - General
Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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  1. Georg Zachmann & Christian von Hirschhausen, 2007. "First Evidence of Asymmetric Cost Pass-Through of EU Emissions Allowances: Examining Wholesale Electricity Prices in Germany," Working Papers 0710, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
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  2. Gervais, Jean-Philippe, 2007. "Disentangling non-linearities in the long- and short-run price relationships: An application to the U.S. hog/Pork supply chain," MPRA Paper 7743, University Library of Munich, Germany, revised 15 Jan 2008. [Downloadable!]
  3. Wlaslowski, Szymon & Binner, Jane & Guiletti, Monica & Joseph, Nathan & Nilsson, Birger, 2007. "New York mark-ups on petroleum products," Working Papers 2008:2, Lund University, Department of Economics. [Downloadable!]
  4. Szymon Wlazlowski & Monica Giulietti & Jane Binner & Costas Milas, 2007. "Dynamics in the European Petroleum Markets," Keele Economics Research Papers KERP 2007/04, Centre for Economic Research, Keele University. [Downloadable!]
  5. Wlazlowski, Szymon & Binner, Jane & Giulietti, Monica & Joseph, Nathan, 2006. "Non-linearities in mark-up on costs," MPRA Paper 1468, University Library of Munich, Germany. [Downloadable!]
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