A threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices

Chen, Li-Hsueh; Finney, Miles; Lai, Kon S.

doi:10.1016/j.econlet.2005.05.037

Cited by 139 publications

(86 citation statements)

References 10 publications

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“…This analysis follows the literature in looking for a simple bivariate long-run cointegrating relationship between retail petroleum prices and the upstream crude oil price similar to that of Chen et al (2005) amongst others. These can be described as:…”

Section: Data Sources and Trendsmentioning

confidence: 99%

“…The test of Hansen and Seo (2002), on the other hand, is the threshold extension to the multivariate test of Johansen (1988). Using this model here can be considered a strong improvement over the likes of Chen et al (2005) as moving away from the twostep approach circumvents the problem of carrying over the errors from the first stage regression into the second stage. This test has been applied elsewhere in the inflation literature by Esteve et al (2006).…”

Section: Threshold Cointegrationmentioning

confidence: 99%

“…The test of Enders and Siklos (2001), which is used by Chen et al (2005) in this literature, is a threshold autoregressive extension to the two-step univariate EngleGranger (1987) cointegration approach. The test of Hansen and Seo (2002), on the other hand, is the threshold extension to the multivariate test of Johansen (1988).…”

Section: Threshold Cointegrationmentioning

confidence: 99%

“…Chen at al (2005) use the threshold cointegration method of Enders and Siklos (2001), again using the same dataset as this paper. They find strong evidence of asymmetric adjustment to upstream crude oil prices, even when considering a variety of spot and future crude oil prices.…”

Section: Introduction and Literature Reviewmentioning

confidence: 99%

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Rising household diesel consumption in the United States: A cause for concern? Evidence on asymmetric pricing

Fosten¹

2012

Energy Economics

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Papers in the literature have thus far overlooked the projected increase in U.S. diesel car share when looking at asymmetries in petroleum pricing. This paper addresses this issue by comparing retail gasoline and diesel prices in order to see whether they rise faster than they fall given the price of their upstream input, crude oil. This phenomenon has been termed in the literature as "Rockets and Feathers." We apply the threshold vector error correction model (TVECM) of Hansen and Seo (2002) which has not yet been applied in the literature. We account for the 2008 structural break to crude oil and petroleum prices by splitting the sample using evidence from the recent structural break unit root test of Kim and Perron (2009). Both markets seem to price symmetrically before the 2008 break, but we find evidence of asymmetric pricing after 2008 in diesel prices, and not in gasoline prices. Given that the diesel market is small relative to the gasoline market and therefore more open to price exploitation, the ongoing cost increases associated with the policy of switching to Ultra Low Sulphur diesel (ULSD) from 2006 to 2010 could be at the heart of this asymmetry. With this in mind, the U.S. Federal Trade Commission should monitor diesel prices as the market share grows, in order to ensure that consumers are not adversely affected.

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Section: Data Sources and Trendsmentioning

confidence: 99%

Section: Threshold Cointegrationmentioning

confidence: 99%

Section: Threshold Cointegrationmentioning

confidence: 99%

Section: Introduction and Literature Reviewmentioning

confidence: 99%

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Rising household diesel consumption in the United States: A cause for concern? Evidence on asymmetric pricing

Fosten¹

2012

Energy Economics

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“…Moreover, a number of studies claim that there is an asymmetric relationship between the oil price followed by OPEC and non-OPEC countries (Chen et al 2005;Ewing et al 2006;Bekiros et al 2008;Hammoudeh et al 2010;Perdiguero-Garćia 2013). Chen et al (2005) document new supportive evidence for asymmetric adjustment in United States retail gasoline prices. The asymmetric transmission is found to occur through the spot markets of crude oil and refinery gas and their future markets.…”

Section: Introduction and Literature Reviewmentioning

confidence: 99%

Long run dynamic volatilities between OPEC and non-OPEC crude oil prices

Ghassan

Alhajhoj

2016

Applied Energy

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Understanding the long-run dynamics of OPEC and non-OPEC crude oil prices is important in an era of increased financialization of petroleum markets. Utilizing an ECM within a threshold cointegration and CGARCH errors framework, we provide evidence on the cointegrating relationship and estimate how and to what extent the respective prices adjust to eliminate disequilibrium. Our findings suggest that the adjustment process of OPEC prices to the positive discrepancies is slow which implies that OPEC producers do not prefer moderate oil prices; however, the reverse holds for non-OPEC producers. These results reflect distinct competitive behaviors between OPEC and non-OPEC producers.

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Testing for Temporal Asymmetry in the Metal Price‐Stock Relationship

Kouassi¹,

Schaeffer²

2008

Commodity Modeling and Pricing

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A threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices

Cited by 139 publications

References 10 publications

Rising household diesel consumption in the United States: A cause for concern? Evidence on asymmetric pricing

Rising household diesel consumption in the United States: A cause for concern? Evidence on asymmetric pricing

Long run dynamic volatilities between OPEC and non-OPEC crude oil prices

Testing for Temporal Asymmetry in the Metal Price‐Stock Relationship

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