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Rockets and feathers revisited: an international comparison on European gasoline markets

  • M. Galeotti
  • A. Lanza

    ()

  • M. Manera

This paper re-examines the issue of asymmetries in the transmission of shocks to crude oil prices onto the retail price of gasoline. Relative to the previous literature, the distinguishing features of the present paper are - i) use of updated and comparable data to carry out an international comparison of gasoline markets; ii) two-stage modeling of the transmission of oil price shocks to gasoline prices (first refinery stage and second distribution stage), in order to assess possible asymmetries at either one or both stages; iii) use of asymmetric error correction models to distinguish between asymmetries that arise from short-run deviations in input prices and from the speed at which the gasoline price reverts to its long-run level; iv) explicit, possibly asymmetric, role of the exchange rate, as crude oil is paid for in dollars whereas gasoline sells for different sums of national currencies; v) bootstrapping of F tests of asymmetries, in order to overcome the lowpower problem of conventional testing procedures. In contrast to several previous findings, the results generally point to widespread differences in both adjustment speeds and short-run responses when input prices rise or fall.

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Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200112.

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Date of creation: 2001
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Handle: RePEc:cns:cnscwp:200112
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  1. Asplund, Marcus & Eriksson, Rickard & Friberg, Richard, 1997. "Price adjustments by a gasoline retail chain," SSE/EFI Working Paper Series in Economics and Finance 194, Stockholm School of Economics.
  2. 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.
  3. 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.
  4. Nathan S. Balke & Stephen P. A. Brown & Mine YĆ¼cel, 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.
  5. Godby, Rob & Lintner, Anastasia M. & Stengos, Thanasis & Wandschneider, Bo, 2000. "Testing for asymmetric pricing in the Canadian retail gasoline market," Energy Economics, Elsevier, vol. 22(3), pages 349-368, June.
  6. Jeffrey D. Karrenbrock, 1991. "The behavior of retail gasoline prices: symmetric or not?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 19-29.
  7. Steven Cook, 1999. "Nonsymmetric error correction revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 6(7), pages 467-470.
  8. McAleer, M. & McKenzie, C.R. & Pesaren, M.H., 1993. "Cointegration and Direct Tests of the Rational Expectations Hypothesis," Cambridge Working Papers in Economics 9306, Faculty of Economics, University of Cambridge.
  9. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  10. Cook, Steven & Holly, Sean & Turner, Paul, 1999. "The power of tests for non-linearity: the case of Granger-Lee asymmetry," Economics Letters, Elsevier, vol. 62(2), pages 155-159, February.
  11. Severin Borenstein & Andrea Shepard, 1996. "Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets," NBER Working Papers 5468, National Bureau of Economic Research, Inc.
  12. Lawrence J. Christiano & Martin Eichenbaum, 1987. "Temporal aggregation and structural inference in macroeconomics," Working Papers 306, Federal Reserve Bank of Minneapolis.
  13. Steven Cook & Sean Holly & Paul Turner, 1999. "DHSY revisited: the role of asymmetries," Applied Economics, Taylor & Francis Journals, vol. 31(7), pages 775-778.
  14. Eichenbaum, Martin, 1989. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," American Economic Review, American Economic Association, vol. 79(4), pages 853-64, September.
  15. Barry Reilly & Robert Witt, 1996. "Petrol Price Asymmetries Revisited," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 89, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  16. Duffy-Deno, Kevin T., 1996. "Retail price asymmetries in local gasoline markets," Energy Economics, Elsevier, vol. 18(1-2), pages 81-92, April.
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