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Anticipated and unanticipated effects of crude oil prices and oil inventory changes on gasoline prices

Author

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  • Stanislav Radchenko

    (Department of Economics, University of North Carolina at Charlotte)

Abstract

This paper proposes a method of distinguishing between the effect of anticipated and unanticipated changes in oil prices and oil inventories on the US gasoline prices. I show that gasoline price adjustments are faster and stronger for anticipated changes in oil prices and inventory levels than for unanticipated changes. The dynamics of the gasoline price response depends on the relative importance of anticipated and unanticipated changes in oil prices and oil inventories in the model. In all versions of the adjustment model, the response of gasoline prices to unanticipated oil price changes is lagged and incomplete. In versions of the model where anticipated oil price changes are relatively important, the response of gasoline prices to anticipated changes in oil prices is immediate and large. As anticipated oil price changes become less important, the response of gasoline prices to anticipated oil price changes becomes muted and delayed.

Suggested Citation

  • Stanislav Radchenko, 2004. "Anticipated and unanticipated effects of crude oil prices and oil inventory changes on gasoline prices," Microeconomics 0406001, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0406001
    Note: Type of Document - pdf; pages: 39
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    File URL: http://econwpa.repec.org/eps/mic/papers/0406/0406001.pdf
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    References listed on IDEAS

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    5. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    6. 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.
    7. 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.
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    9. Stephen P. A. Brown & Mine K. Yücel, 2000. "Gasoline and crude oil prices: why the asymmetry?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q3, pages 23-29.
    10. 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.
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    12. Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
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    14. Stanislav Radchenko, 2004. "Lags in the response of gasoline prices to changes in crude oil," Econometrics 0406001, EconWPA.
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    Citations

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    Cited by:

    1. Radchenko, Stanislav, 2005. "Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases," Energy Economics, Elsevier, vol. 27(5), pages 708-730, September.
    2. Radchenko, Stanislav & Tsurumi, Hiroki, 2006. "Limited information Bayesian analysis of a simultaneous equation with an autocorrelated error term and its application to the U.S. gasoline market," Journal of Econometrics, Elsevier, vol. 133(1), pages 31-49, July.
    3. Michael Noel, 2009. "Do retail gasoline prices respond asymmetrically to cost shocks? The influence of Edgeworth Cycles," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 582-595.

    More about this item

    Keywords

    gasoline price response; anticipated price changes; oil inventory;

    JEL classification:

    • L7 - Industrial Organization - - Industry Studies: Primary Products and Construction

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