Asplund, Marcus (Dept. of Economic Statistics, Stockholm School of Economics) Eriksson, Rickard (Dept. of Economic Statistics, Stockholm School of Economics) Friberg, Richard () (Dept. of Economic Statistics, Stockholm School of Economics)
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This paper provides a detailed examination of price responses in the Swedish gasoline market to changes in the world market price. We use daily price data from one of the leading retail chains together with input costs (spot market price and exchange rate)for the period January 1980 to December (1996). Over the period the list price was increased (decreased) 130 (120) times, but the periodicity varies substantially and there are very few small price adjustments. This pattern is broadly consistent with a state-dependent pricing rule. Predictions of a simple Ss-model are tested with an ordered probit sample selection model. The results show that price adjustments are more likely to occur when either the input price or the exchange rate has moved significantly since the last price adjustment. However, our results indicate that prices are not adjusted to the long run equilibrium price at once. Therefore we explore an error correction model (ECM), that shows that in the short run prices are gradually moving towards the long run equlibrium in response to cost shocks.
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Length: 45 pages Date of creation: 17 Sep 1997 Date of revision: Publication status: Published in Scandinavian Journal of Economics, 2000, pages 101-121. Handle: RePEc:hhs:hastef:0194
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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 C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation F14 - International Economics - - Trade - - - Country and Industry Studies of Trade L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
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.:
Carlton, Dennis W, 1986.
"The Rigidity of Prices,"
American Economic Review,
American Economic Association, vol. 76(4), pages 637-58, September.
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