Testing the law of one-price in the US gasoline market: a long memory approach

Marco Barassi, Gianluigi De Pascale () and Raffaele Lagravinese
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Gianluigi De Pascale: Università degli Studi di Foggia

No 03-2021, SERIES from Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro"

Abstract: This paper aims to shed new light on †law of one-price†in the United States' gasoline market over the period June-2003-December-2019. Specifically, we test for convergence of the retail prices of gasoline in different US PADDs, states and cities using the Local Whittle estimator (LW) and its variants (Robinson 1995, Shimotsu and Phillips 2005). Mean/trend reversion of the relative price of each unit will imply convergence toward the average price in the US thereby offering support for the law of one-price. LW estimators allow us to consider the case where relative gasoline price are fractionally integrated process and may display long memory implying a slow process of convergence. The results obtained generally offer support for the law of one-price albeit with significant differences in the rate of convergence between PADDs, States and Cities.

Keywords: Gasoline price; Convergence; Fractional integration; Whittle estimator (search for similar items in EconPapers)
JEL-codes: C01 C22 Q4 Q41 (search for similar items in EconPapers)
Pages: 277
Date: 2021-06, Revised 2021-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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