Are US gasoline price adjustments asymmetric?

Abstract

We use the LSE-Hendry general to specific approach to analyse if US gasoline price adjustments are asymmetric with respect to changes in crude oil prices. Furthermore, we modify some weaknesses in the earlier works by Borenstein et al. (1997) and Bachmeier and Griffin (2003) and shows that if the price adjustment equations are properly specified and estimated, alternative specifications and temporal aggregation of data do not affect the results. Monthly US data are used to show that alternative specifications give equally good results and there is no asymmetry in the US gasoline price adjustments.

Price Transmission in the EU Wholesale Petroleum Markets

“…The use of flexible nonlinear models and high-frequency data, on the other hand, allows us to find evidence of significant nonlinearities in the crude oil to wholesale price transmission. This result differs from previous studies which use lower frequency observations and simpler models to test for nonlinearities [e.g., Hosken, McMillan, and Taylor (2008) for U.S. using weekly data and Rao and Rao (2005) also for U.S. but with monthly data].…”

Are unleaded gasoline and diesel price adjustments symmetric? A comparison of the four largest EU retail fuel markets

“…Cramon-Taubadel and Loy (1997), Cramon-Taubadel (1998), and Cramon-Taubadel and Meyer (2000) introduced the symmetric/asymmetric error correction approach through an ex-ante disaggregation of data. Within this framework, Bachmeier and Griffin (2003), Rao and Rao (2008), Karagiannis et al (2010), Karagiannis et al (2011), and Karagiannis et al (2014) presented an alternative dynamic approach with an embedded asymmetry, which we call the "decomposed" ECM model. This model is intuitively appealing and its main advantage is that two different speeds of adjustment, for positive and negative changes in the variables included, can simultaneously be estimated.…”

“…(2a) and (2b) to differ depending on whether the change in the international crude oil price is positive or negative. Rao and Rao (2008) provide a complete derivation, formulation and discussion of the specification of the "decomposed" ECM model with an embedded asymmetry. This is a variant of Eqs.…”

“…The former and the latter are the error correction terms of the ECM model and can be thought of as the measure of past period departure from the equilibrium. Rao and Rao (2008) ) are assumed to respond to any negative change in the independent variable (ΔOil t b 0). 7 Before applying the "decomposed" ECM model 8 to our dataset, we test for the number of co-integrated vectors between the dependent and the independent variables.…”

“…More specifically, we test the symmetry of adjustment hypothesis, that is θ + = θ − (Karagiannis et al, 2010(Karagiannis et al, , 2011(Karagiannis et al, and 2014Rao and Rao, 2008). The existence of a symmetric speed of adjustment to equilibrium is tested by using the Wald (χ 2 ) -test.…”