Asymmetry: Resurrecting the roots

Manuel Frondel, Christoph Schmidt and Colin Vance

The Quarterly Review of Economics and Finance, 2016, vol. 60, issue C, 201-206

Abstract: This note provides for a didactic survey on a range of primary methods for dealing with price asymmetry. Using Wolffram's (1971) stylized example, we argue that asymmetry can be captured in a straightforward and highly intuitive manner with first differences. While this asymmetry definition is more readily interpretable than the alternatives proposed by Wolffram (1971) and Houck (1977), we demonstrate that, theoretically, all three of these definitions are equivalent. Using data on U.S. coffee consumption, however, we illustrate that, in practice, these approaches may yield divergent conclusions on asymmetry. In such situations, the asymmetry concept based on first differences is advantageous.

Keywords: Irreversibility; Decomposition approaches (search for similar items in EconPapers)
JEL-codes: D13 Q41 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Asymmetry – Resurrecting the Roots (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:60:y:2016:i:c:p:201-206

DOI: 10.1016/j.qref.2015.09.002

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