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Asymmetric Pass-Through in U.S. Gasoline Prices

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  • Matthew Chesnes

Abstract

This paper presents new evidence of asymmetric pass-through, the notion that upward cost shocks are passed through faster than downward cost shocks, in U.S. gasoline prices. Much of the extant literature comes to seemingly contradictory conclusions about the existence and causes of asymmetry, though the differences may be due to different aggregation (both over time and geographic markets) and the use of different price series including crude oil, wholesale, and retail gasoline prices. I utilize a large and detailed dataset to determine where evidence of a pass-through asymmetry exists, and how it depends on the aggregation and price series chosen by the researcher. Using the error correction model, I find evidence of pass-through asymmetry based on spot, rack and retail prices, though the largest effect is found in the rack to retail relationship. I find more asymmetry in branded prices compared with unbranded prices, consistent with a consumer search explanation for asymmetry. However, I also find evidence consistent with explanations based on market power as the magnitude of asymmetry is positively associated with retail concentration. On average, retail prices rise three to four times as fast as they fall.

Suggested Citation

  • Matthew Chesnes, 2016. "Asymmetric Pass-Through in U.S. Gasoline Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
  • Handle: RePEc:aen:journl:ej37-1-chesnes
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    References listed on IDEAS

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    Cited by:

    1. Lucas W. Davis & Shaun McRae & Enrique Seira Bejarano, 2018. "An Economic Perspective on Mexico's Nascent Deregulation of Retail Petroleum Markets," NBER Working Papers 24547, National Bureau of Economic Research, Inc.
    2. Antoniou, Fabio & Fiocco, Raffaele & Guo, Dongyu, 2017. "Asymmetric price adjustments: A supply side approach," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 335-360.
    3. repec:eee:eneeco:v:65:y:2017:i:c:p:42-49 is not listed on IDEAS
    4. Antoniou, Fabio & Fiocco, Raffaele & Guo, Dongyu, 2017. "Asymmetric price adjustments: A supply side approach," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 335-360.
    5. Cristina Conflitti & Matteo Luciani, 2017. "Oil Price Pass-Through into Core Inflation," Finance and Economics Discussion Series 2017-085, Board of Governors of the Federal Reserve System (U.S.).

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    JEL classification:

    • F0 - International Economics - - General

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