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On the Examination of Competition in the Petroleum Industry: A Pooled Panel Threshold Analysis

Chaoyi Chen, Michael Polemis () and Thanasis Stengos ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper contributes to the literature since it tries to link the Exchange Rate Pass-Through (ERPT) with the “rockets and feathers” hypothesis using a panel of EU-28 countries. Allowing for the existence of an endogenous threshold variable our empirical findings indicate that the threshold model is better suited to this analysis than the baseline linear adjustment model. This is the case since the latter restricts the threshold to be centered around zero and the dynamic response to cumulative shocks cannot be properly identified. The empirical findings reveal that the threshold variable expressed by the trade-weighted dollar exchange rate index is statistically significant only in the sample above the threshold (high regime). This means that for the net EU exporting countries, fluctuations in the real effective exchange rate of the US against its major EU trading partners does affect the level of pre-tax retail gasoline prices with the relevant elasticity exceeding unity (complete ERPT). Moreover, all the statistical tests reject the null hypothesis that there is no significant threshold and thus an asymmetric adjustment gasoline mechanism prevails.

Keywords: Asymmetric gasoline adjustment; ERPT; Threshold analysis; Εxchange rate; Non-linear effects (search for similar items in EconPapers)
JEL-codes: C14 C23 C24 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2018-09-20
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