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New evidence on the relationship beetween crude oil and petroleum product prices

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  • Mario Denni
  • G. Frewer

Abstract

The present study aims at providing new evidence on the price re- lationships between crude oil and petroleum products. We employ single-equation error correction models (ECM) in which both changes in crude oil price and deviations from the long-run equilibrium are used to explain product price dynamics. A GARCH structure is applied to models' residuals to account for the time-varying volatility. Our key piece of innovation is the introduction of re¯ning margin e®ects to the analysis of the asymmetric products price movements. Results suggest that the overall balance in the re¯nery sector plays an important part in the adjustment to crude price shocks.

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Bibliographic Info

Paper provided by Department of Economics - University Roma Tre in its series Departmental Working Papers of Economics - University 'Roma Tre' with number 0061.

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Length: 48
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:rtr:wpaper:0061

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Keywords: Oil prices; Market integration; Cointegration; Error correction models;

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