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New Evidence on Asymmetric Gasoline Price Responses

  • Lance J. Bachmeier

    (East Carolina University)

  • James M. Griffin

    (George Bush School, Texas A&M University)

In a 1997 paper, Borenstein, Cameron, and Gilbert (BCG) claim that gasoline prices rise quickly following an increase in the price of crude oil, but fall slowly following a decrease. This note estimates an error-correction model with daily spot gasoline and crude-oil price data over the period 1985-1998 and finds no evidence of asymmetry in wholesale gasoline prices. The sources of the difference in results are twofold. First, we use the standard Engle-Granger two-step estimation procedure, whereas BCG used a nonstandard estimation methodology. Second, even using BCG's nonstandard specification, the use of daily rather than weekly data yields little evidence of price asymmetry. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 85 (2003)
Issue (Month): 3 (August)
Pages: 772-776

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Handle: RePEc:tpr:restat:v:85:y:2003:i:3:p:772-776
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  1. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
  2. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 305-339.
  3. Severin Borenstein, 1991. "Selling Costs and Switching Costs: Explaining Retail Gasoline Margins," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 354-369, Autumn.
  4. Reagan, Patricia B. & Weitzman, Martin L., 1982. "Asymmetries in price and quantity adjustments by the competitive firm," Journal of Economic Theory, Elsevier, vol. 27(2), pages 410-420, August.
  5. Severin Borenstein & Andrea Shepard, 1993. "Dynamic Pricing in Retail Gasoline Markets," NBER Working Papers 4489, National Bureau of Economic Research, Inc.
  6. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
  7. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  8. Geweke, John F, 1978. "Temporal Aggregation in the Multiple Regression Model," Econometrica, Econometric Society, vol. 46(3), pages 643-61, May.
  9. 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.
  10. Granger, C W J & Lee, T H, 1989. "Investigation of Production, Sales and Inventory Relationships Using Multicointegration and Non-symmetric Error Correction Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S145-59, Supplemen.
  11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  12. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  13. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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