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How Do Gasoline Prices Respond to a Cost Shock?

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  • Erwan Gautier
  • Magali Marx
  • Paul Vertier

Abstract

In a broad class of sticky-price models, theory predicts that the kurtosis-to-frequency ratio of price changes is a sufficient statistic for the cumulative impulse response of prices (CIRP) to a nominal shock. Using several million daily gasoline prices in France, we provide supporting evidence of this prediction. The CIRP correlates with the kurtosis-to-frequency ratio, but also with both frequency and kurtosis taken separately. The sign and the magnitude of the correlations are fully in line with theoretical predictions. Other moments of the price change distribution do not correlate with the CIRP.

Suggested Citation

  • Erwan Gautier & Magali Marx & Paul Vertier, 2023. "How Do Gasoline Prices Respond to a Cost Shock?," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(4), pages 707-741.
  • Handle: RePEc:ucp:jpemac:doi:10.1086/727698
    DOI: 10.1086/727698
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    Cited by:

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    2. Alberto Cavallo & Francesco Lippi & Ken Miyahara, 2023. "Large Shocks Travel Fast," NBER Working Papers 31659, National Bureau of Economic Research, Inc.
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    4. Odran Bonnet & Étienne Fize & Tristan Loisel & Lionel Wilner, 2024. "Is Carbon Tax Truly More Salient? Evidence from Fuel Tourism at the France-Germany Border," CESifo Working Paper Series 10918, CESifo.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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