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Nonlinear and asymmetric pricing behaviour in the Spanish gasoline market

Alvaro Escribano () and Torrado María
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Torrado María: Universidad Carlos III de Madrid, Department of Economics, Getafe, Madrid, Spain

Studies in Nonlinear Dynamics & Econometrics, 2018, vol. 22, issue 5, 19

Abstract: Over the last decades a transition from a state-own monopoly to a private business took place in the Spanish fuel sector. To figure out whether downstream prices react differently to upstream price increases than to price decreases, alternative dynamic nonlinear and asymmetric error correction models are applied to weekly price data. This paper analyse the existence of price asymmetries in the fuel market in Spain during the 2011–2016 period. In comparison with traditional asymmetric price theory literature, this paper introduces a new double threshold error correction (ECM) model (DT-ECM) and new double logistic ECM models and compares them with more common linear ECM, time varying parameter models (TV-ECM), threshold autoregressive models (T-ECM), smooth transition autoregressive (STAR) models and nonlinear error correction (Logistic-ECM) and double threshold Logistic (DT-Logistic ECM). The asymmetric results found in Spain in the oil sector, show that sophisticated bivariate short-run nonlinearities are present in the gasoline market prices and that those price reactions depend on two main aspects; whether the oil price increases or decreases and on the stage (above of below) of the prices of gasoline relative to their long-run expected crude oil prices (error correction term). Those empirical results are consistent with the economic explanations based on market power-collusion and/or with consumer having search costs.

Keywords: double-threshold-ECM models; gasoline price asymmetries; logistic-STAR models; nonlinear error correction models; rockets and feathers; threshold-ECM models (search for similar items in EconPapers)
JEL-codes: B23 C24 C52 D43 L13 L71 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/snde-2017-0065

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