Down the non-linear road from oil to consumer energy prices: no much asymmetry along the way

Fabrizio Venditti

No 751, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In the past decade changes in oil prices have played a significant role in shaping inflation dynamics in the US and in the euro area, largely through their direct effect on fuels prices, reviving the controversy over whether the prices of petroleum products respond more promptly to positive than to negative oil price shocks. This paper provides fresh evidence on this issue for the US, the euro area and the four largest euro area countries (Germany, France, Italy and Spain), both for petrol and diesel prices. Inference is based on the dynamic response of downstream prices to upstream shocks, rather than on tests on the regression slopes as in the majority of existing studies, taking into account the non-linearity of the impulse response function in models with asymmetric adjustment, so far ignored in this literature. The empirical analysis shows that fuels prices respond very promptly to oil price shocks, with some heterogeneity across countries, and that no systematic evidence of asymmetries emerges. This result is robust across periods of high and low oil price volatility and holds both for standard and large shocks.

Keywords: energy; oil prices; asymmetry; inflation (search for similar items in EconPapers)
JEL-codes: C52 E31 Q43 (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-eec, nep-ene and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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