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

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.

Keywords: gasoline price response; anticipated price changes; oil inventory (search for similar items in EconPapers)
JEL-codes: L7 (search for similar items in EconPapers)
Date: Written 2004-06-01
Note: Type of Document - pdf; pages: 39
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