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European gasoline markets: price transmission asymmetries in mean and variance

Alvaro Escribano () and María Torrado

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: The main objective of this paper is to analyse the different sources of asymmetric price transmissions in the fuel market for France, Germany and Spain. During the last decades,the EU has carried out several common energy policies to achieve more efficient and competitive markets. However, given the specific characteristics of each country, the question we want to address is if fuel prices across EU members behave differently in response to different market structures. Oil operators have been targeted by competition authorities for conducting non-competitive practices. To figure out whether the common complaint that gasoline prices adjust differently to positive or negative input price changes, dynamic asymmetric models for the mean and variance are developed for each country. Several asymmetric specifications for the mean and variance are considered and the best specification combines double threshold error correction models (DT-ECM) for the mean with asymmetric EGARCH plus dummy variables for the conditional variance. We show that French gasoline prices behave more competitively, adjusting quicker to the long-run equilibrium and with higher price volatility. This outcome is consistent with the strong presence of hypermarkets following low-cost pricing strategies in France.

Keywords: Log-GARCH; GJR-GARCH; EGARCH; GARCH; Nonlinear; error; correction; Rockets; and; feathers; Gasoline; price; asymmetries; Competition (search for similar items in EconPapers)
JEL-codes: B23 C24 C52 D43 L13 L71 (search for similar items in EconPapers)
Date: 2020-01-30
New Economics Papers: this item is included in nep-com, nep-ene, nep-eur and nep-reg
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