How do Gasoline Prices Respond to a Cost Shock ?
Erwan Gautier (),
Magali Marx () and
Working papers from Banque de France
Using several millions of daily prices collected over the period 2007-2018 in France, we investigate how gasoline retail prices respond to a common shock on marginal cost (i.e. the wholesale gasoline price quoted on the Rotterdam market). We find that the pass-through is complete: a 1% change in Rotterdam price translates to a change in retail price of 0.8%, in line with the share of the wholesale gasoline in total costs. The adjustment is gradual: the full pass through takes about 3 weeks. In a broad class of sticky price models, the ratio of the kurtosis over the frequency of price changes is shown to be a sufficient statistic for the cumulative impulse response of prices (CIRP) to a nominal shock. We provide evidence that the sufficient statistic prediction holds when we look at how gasoline prices respond to a common cost shock. Relating, at the gas station level, the CIRP to moments of the price change distribution, we find that the CIRP correlates with the ratio of kurtosis over frequency, but also with both frequency and kurtosis taken separately. The sign and the magnitude of the correlations are fully in line with theoretical predictions. We also show that other moments do not correlate with CIRP as robustly as the frequency and the kurtosis.
Keywords: Price Rigidity; Gasoline; Sufficient Statistic (search for similar items in EconPapers)
JEL-codes: D43 E31 L11 (search for similar items in EconPapers)
Pages: 71 pages
New Economics Papers: this item is included in nep-com, nep-ene, nep-mac and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... /documents/wp861.pdf
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:861
Access Statistics for this paper
More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().