Asymmetric fuel price responses under heterogeneity

Jacint Balaguer and Jordi Ripollés

MPRA Paper from University Library of Munich, Germany

Abstract: We explore the effect of cross-sectional aggregation of data on estimation and test of asymmetric retail fuel price responses to wholesale price shocks. The analysis is performed on data collected daily from individual fuel stations in the Spanish metropolitan areas of Madrid and Barcelona. While the standard OLS estimator is applied to an error correction model in the case of the aggregated time series, we use the mean group approaches developed by Pesaran and Smith (1995) and Pesaran (2006) to estimate the short- and long-run micro-relations under heterogeneity. We found remarkable differences between the results of estimations using aggregated and disaggregated data, which are highly robust to both datasets considered. Our findings could help to explain many of the results in the literature on this research topic. On the one hand, they suggest that the typical estimation with aggregated data clearly tends to overestimate the persistence of shocks. On the other hand, we show that aggregation may generate a loss of efficiency in econometric estimates that is sufficiently large to hide the existence of the “rockets and feathers” phenomenon.

Keywords: Fuel pricing behavior; asymmetry; daily data; cross-sectional aggregation (search for similar items in EconPapers)
JEL-codes: C31 C32 C33 D43 Q40 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-ene
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Related works:
Journal Article: Asymmetric fuel price responses under heterogeneity (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:52481

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