Smooth Transition Models in Price Transmission
AbstractConsumers complain that retail prices of petroleum products increase instantly whenever prices of crude oil increase but take a long time to fall after crude oil price decreases. This apparent discrepancy attracts significant attention in the applied literature, as it might imply a welfare transfer from individual consumers to big oil companies. Unfortunately, the way the “rocket and feathers” phenomena are modelled suffers from unrealistic assumptions. In this article we analyse the price transmission between energy products at different processing tiers in the European Union using innovative smooth transition models. We find previously missed patterns, consistent with transactional costs theories and casting some doubts on the negative welfare effect of asymmetric price transmission.
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 04-08.
Date of creation: Jan 2008
Date of revision:
Oil Markets; Nonlinear Models; Price Transmission; Europe;
Find related papers by JEL classification:
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
- 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
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