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Asymmetric Exchange Rate and Oil Price Pass-Through in Turkish Fuel Oil Market

Fatih Akcelik and Utku Ozmen

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: In this paper, we revisit the unsettled discussion of whether retail fuel oil prices respond asymmetrically to oil price shocks. Using a novel micro approach that considers each price spell separately; we find evidence of pass-through asymmetry in the fuel oil market in Turkey. With our approach it is possible to analyze asymmetry at various other grounds including source and size of the cost shock. We show that exchange rate (oil price) is the main factor fueling asymmetry in case of cost increases (decreases). Also, if the magnitude of positive cost shock is higher, pass-through will be lower. Finally, empirical evidence suggests that pricing behavior in terms of pass-through degree and asymmetry varies across firms. The market power of the firms is suggested as the main explanation of the asymmetry, yet there are factors limiting the use of market power in price setting.

Keywords: Fuel oil, Oil price, Exchange rate, Pass-through asymmetry, Gasoline, Diesel; Micro data, Turkey (search for similar items in EconPapers)
JEL-codes: D22 D43 E31 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ara, nep-cwa, nep-ene and nep-mac
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Citations: View citations in EconPapers (1)

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