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New evidence on the relationship beetween crude oil and petroleum product prices

Author

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  • Mario Denni
  • G. Frewer

Abstract

The present study aims at providing new evidence on the price re- lationships between crude oil and petroleum products. We employ single-equation error correction models (ECM) in which both changes in crude oil price and deviations from the long-run equilibrium are used to explain product price dynamics. A GARCH structure is applied to models' residuals to account for the time-varying volatility. Our key piece of innovation is the introduction of re¯ning margin e®ects to the analysis of the asymmetric products price movements. Results suggest that the overall balance in the re¯nery sector plays an important part in the adjustment to crude price shocks.

Suggested Citation

  • Mario Denni & G. Frewer, 2006. "New evidence on the relationship beetween crude oil and petroleum product prices," Departmental Working Papers of Economics - University 'Roma Tre' 0061, Department of Economics - University Roma Tre.
    • Handle: RePEc:rtr:wpaper:0061
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    References listed on IDEAS

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    Cited by:

    1. Szymon Wlazlowski & Monica Giulietti & Jane Binner & Costas Milas, 2008. "Smooth Transition Models in Price Transmission," Working Paper series 04_08, Rimini Centre for Economic Analysis.

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    More about this item

    Keywords

    Oil prices; Market integration; Cointegration; Error correction models;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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