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Do daily retail gasoline prices adjust asymmetrically?

  • L. Bettendorf
  • S. A. van der Geest
  • G. H. Kuper

This paper analyses adjustments in the Dutch retail gasoline prices. We estimate an error correction model on changes in the daily retail price for gasoline (taxes excluded) for the period 1996-2004, taking care of volatility clustering by estimating an EGARCH model. It turns out that the volatility process is asymmetrical: a positive shock to the retail price has a greater effect on the variance of the retail price than a negative shock. We conclude that the retail price and the spot price do not drift apart in the long run. However, there is a faster reaction to upward changes in spot prices than to downward changes in spot prices in the short run. This asymmetry starts 3 days after the change in the spot price and lasts for 4 days.

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Article provided by Taylor & Francis Journals in its journal Journal of Applied Statistics.

Volume (Year): 36 (2009)
Issue (Month): 4 ()
Pages: 385-397

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Handle: RePEc:taf:japsta:v:36:y:2009:i:4:p:385-397
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  1. Severin Borenstein & A. Colin Cameron, 1992. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," NBER Working Papers 4138, National Bureau of Economic Research, Inc.
  2. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  3. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
  4. Noel, Michael, 2004. "Edgeworth Price Cycles: Evidence from the Toronto Retail Gasoline Market," University of California at San Diego, Economics Working Paper Series qt64j579g9, Department of Economics, UC San Diego.
  5. Eckert, Andrew & West, Douglas S, 2004. "Retail Gasoline Price Cycles across Spatially Dispersed Gasoline Stations," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 245-73, April.
  6. Marcel Canoy & S. Onderstal, 2003. "Tight oligopolies: in search of proportionate remedies," CPB Document 29, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  8. Michael C. Davis & James D. Hamilton, 2003. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," NBER Working Papers 9741, National Bureau of Economic Research, Inc.
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