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

Authors: Galeotti M., Lanza A., Manera M.

Journal: Energy Economics

Publisher: Elsevier

Year: 2003

Volume: 25

Pages: 175-190

Keywords: Gasoline prices; Speed of adjustment; Asymmetric adjustment; Exchange rate

JEL: C22; D40; Q40

DOI: http://dx.doi.org/10.1016/S0140-9883(02)00102-0

 

Abstract

This paper re-examines the issue of asymmetries in the transmission of shocks to crude oil prices onto the retail price of gasoline. The distinguishing features are: (i) use of updated and comparable data to carry out an international comparison of gasoline markets; (ii) two-stage modeling of the transmission mechanism, in order to assess possible asymmetries at either the refinery stage, the distribution stage or both; (iii) use of asymmetric error correction models to distinguish between short-run and long-run asymmetries; (iv) explicit, possibly asymmetric, role of the exchange rate; (v) bootstrapping of F-tests of asymmetries, in order to overcome the low-power 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.