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Smooth Transition Models in Price Transmission

Author

Listed:
  • Szymon Wlazlowski

    (Aston University, UK)

  • Monica Giulietti

    (Aston University, UK)

  • Jane Binner

    (Aston University, UK)

  • Costas Milas

    (Keele University, UK and The Rimini Centre for Economic Analysis, Rimini, Italy)

Abstract

Consumers 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.

Suggested Citation

  • Szymon Wlazlowski & Monica Giulietti & Jane Binner & Costas Milas, 2008. "Smooth Transition Models in Price Transmission," Working Paper series 04_08, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:04_08
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    References listed on IDEAS

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    Cited by:

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    2. Alberto Bagnai & Christian Alexander Mongeau Ospina, 2016. "Price asymmetries in the European gasoline market," a/ Working Papers Series 1602, Italian Association for the Study of Economic Asymmetries, Rome (Italy).

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    More about this item

    Keywords

    Oil Markets; Nonlinear Models; Price Transmission; Europe;
    All these keywords.

    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; Diffusion Processes
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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