Asymmetry – Resurrecting the Roots

Manuel Frondel, Christoph Schmidt and Colin Vance

No 451, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This note attempts to reconcile a range of primary methods for dealing with price asymmetry, such as the approaches proposed by Tweeten and Quance (1969), Wolffram (1971) and Houk(1977). Using Wolffram's stylized example, we first illustrate that the notion of asymmetry can be captured in a straightforward and highly intuitive manner in terms of first differences. While this asymmetry definition is more readily interpretable than the alternatives proposed by Wolffram and Houk, we demonstrate that, theoretically, these definitions are equivalent. This conclusion also turns out to be true for Wolfframs's stylized example. Using data on coffee consumption, however, we illustrate that, in practice, these approaches may yield divergent conclusions with respect to asymmetry. We argue that in such situations the asymmetry notion based on first differences should be preferred.

Keywords: irreversibility; decomposition approaches (search for similar items in EconPapers)
JEL-codes: D13 Q41 (search for similar items in EconPapers)
Date: 2013
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Journal Article: Asymmetry: Resurrecting the roots (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:451

DOI: 10.4419/86788508

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