Asymmetric Error Correction Models for the Oil-Gasoline Price Relationship

Matteo Manera () and Margherita Grasso
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Margherita Grasso: University College London

No 2005.75, Working Papers from Fondazione Eni Enrico Mattei

Abstract: The existing literature on price asymmetries does not systematically investigate the sensitivity of the empirical results to the choice of a particular econometric specification. This paper fills this gap by providing a detailed comparison of the three most popular models designed to describe asymmetric price behaviour, namely asymmetric ECM, autoregressive threshold ECM and ECM with threshold cointegration. Each model is estimated on a common monthly dataset for the gasoline markets of France, Germany, Italy, Spain and UK over the period 1985-2003. All models are able to capture the temporal delay in the reaction of retail prices to changes in spot gasoline and crude oil prices, as well as some evidence of asymmetric behaviour. However, the type of market and the number of countries which are characterized by asymmetric oil-gasoline price relations vary across models. The asymmetric ECM yields some evidence of asymmetry for all countries, mainly at the distribution stage. The threshold ECM strongly rejects the null hypothesis of symmetric price behaviour, particularly in the case of France and Germany. Finally, the ECM with threshold cointegration finds long-run asymmetry for each country in the reaction of retail prices to oil price changes.

Keywords: Oil prices; Gasoline prices; Asymmetries; Error correction models (search for similar items in EconPapers)
JEL-codes: C22 D40 Q40 (search for similar items in EconPapers)
Date: 2005-05
New Economics Papers: this item is included in nep-bec and nep-fin
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Asymmetric error correction models for the oil-gasoline price relationship (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2005.75

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