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Anticipated and unanticipated effects of crude oil prices and oil inventory changes on gasoline prices

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Author Info

  • Stanislav Radchenko

    (Department of Economics, University of North Carolina at Charlotte)

Abstract

This paper proposes a method of distinguishing between the effect of anticipated and unanticipated changes in oil prices and oil inventories on the US gasoline prices. I show that gasoline price adjustments are faster and stronger for anticipated changes in oil prices and inventory levels than for unanticipated changes. The dynamics of the gasoline price response depends on the relative importance of anticipated and unanticipated changes in oil prices and oil inventories in the model. In all versions of the adjustment model, the response of gasoline prices to unanticipated oil price changes is lagged and incomplete. In versions of the model where anticipated oil price changes are relatively important, the response of gasoline prices to anticipated changes in oil prices is immediate and large. As anticipated oil price changes become less important, the response of gasoline prices to anticipated oil price changes becomes muted and delayed.

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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0406001.

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Length: 39 pages
Date of creation: 01 Jun 2004
Date of revision:
Handle: RePEc:wpa:wuwpmi:0406001

Note: Type of Document - pdf; pages: 39
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Web page: http://128.118.178.162

Related research

Keywords: gasoline price response; anticipated price changes; oil inventory;

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References

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  1. Pindyck, Robert S., 1990. "Inventories and the short-run dynamics of commodity prices," Working papers 3133-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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  10. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
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  12. Stanislav Radchenko, 2004. "Lags in the response of gasoline prices to changes in crude oil," Econometrics 0406001, EconWPA.
  13. Godby, R. & Stengos, T. & Wandsschneider, B., 1997. "Testing for Asymmetric Pricing in the Canadian Retail Gasoline Market," Working Papers 1997-4, University of Guelph, Department of Economics and Finance.
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  16. Stephen P. A. Brown & Mine K. Yücel, 2000. "Gasoline and crude oil prices: why the asymmetry?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q3, pages 23-29.
  17. Nathan S. Balke & Stephen P. A. Brown & Mine Yücel, 1998. "Crude oil and gasoline prices: an asymmetric relationship?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 2-11.
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Citations

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Cited by:
  1. Stanislav Radchenko, 2004. "Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases," Industrial Organization 0408001, EconWPA.
  2. Stanislav Radchenko, 2004. "Limited Information Bayesian Analysis of a Simultaneous Equation with an Autocorrelated Error Term and its Application to the U.S. Gasoline Market," Econometrics 0408001, EconWPA.

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