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Econometric Models of Asymmetric Price Transmission

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  • Frey, Giliola
  • Manera, Matteo

Abstract

In this paper we review the existing empirical literature on price asymmetries in commodities, providing a way to classify and compare different studies which are highly heterogeneous in terms of econometric models, type of asymmetries and empirical findings. Relative to the previous literature, this paper is novel in several respects. First, it presents a detailed and updated survey of the existing empirical contributions on the existence of price asymmetries in the transmission mechanism linking input prices to output prices. Second, this paper presents an extension of the traditional distinction between long-run and short-run asymmetries to new categories of asymmetries, such as: contemporaneous impact, distributed lag effect, cumulated impact, reaction time, equilibrium and momentum equilibrium adjustment path, regime effect, regime equilibrium adjustment path. Third, each empirical study is critically discussed in the light of this new classification of asymmetries. Fourth, this paper evaluates the relative merits of the most popular econometric models for price asymmetries, namely autoregressive distributed lags, partial adjustments, error correction models, regime switching and vector autoregressive models.

Suggested Citation

  • Frey, Giliola & Manera, Matteo, 2005. "Econometric Models of Asymmetric Price Transmission," International Energy Markets Working Papers 12122, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemie:12122
    DOI: 10.22004/ag.econ.12122
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    References listed on IDEAS

    as
    1. Reilly, Barry & Witt, Robert, 1998. "Petrol price asymmetries revisited," Energy Economics, Elsevier, vol. 20(3), pages 297-308, June.
    2. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    3. Nicholas J. Powers, 1995. "Sticky short-run prices and vertical pricing: Evidence from the market for iceberg lettuce," Agribusiness, John Wiley & Sons, Ltd., vol. 11(1), pages 57-75.
    4. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
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    More about this item

    Keywords

    Demand and Price Analysis;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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