Asymmetric Error Correction Models for the Oil-Gasoline Price Relationship
AbstractThe existing literature on price asymmetries does not systematically investigate the sensitivity of the empirical results to the choice of a particular econometric specification. This paper fills this gap by providing a detailed comparison of the three most popular models designed to describe asymmetric price behaviour, namely asymmetric ECM, autoregressive threshold ECM and ECM with threshold cointegration. Each model is estimated on a common monthly dataset for the gasoline markets of France, Germany, Italy, Spain and UK over the period 1985-2003. All models are able to capture the temporal delay in the reaction of retail prices to changes in spot gasoline and crude oil prices, as well as some evidence of asymmetric behaviour. However, the type of market and the number of countries which are characterized by asymmetric oil-gasoline price relations vary across models. The asymmetric ECM yields some evidence of asymmetry for all countries, mainly at the distribution stage. The threshold ECM strongly rejects the null hypothesis of symmetric price behaviour, particularly in the case of France and Germany. Finally, the ECM with threshold cointegration finds long-run asymmetry for each country in the reaction of retail prices to oil price changes.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2005.75.
Date of creation: May 2005
Date of revision:
Oil prices; Gasoline prices; Asymmetries; Error correction models;
Other versions of this item:
- Grasso, Margherita & Manera, Matteo, 2007. "Asymmetric error correction models for the oil-gasoline price relationship," Energy Policy, Elsevier, vol. 35(1), pages 156-177, January.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-27 (All new papers)
- NEP-BEC-2005-06-27 (Business Economics)
- NEP-FIN-2005-06-27 (Finance)
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