Evidence about asymmetric price transmission in the main European fuel markets: from TAR-ECM to Markov-switching approach

Martín-Moreno, José M.; Pérez, Rafaela; Ruíz, Jesús M.

doi:10.1007/s00181-017-1388-1

Cited by 12 publications

(10 citation statements)

References 26 publications

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“…Following Martín‐Moreno et al. () our article contributes to filling a gap in the recent literature applied to Spanish fuel markets in the following way: we first use forward price data for crude oil because fuel dealers use forward contracts to cover against the changes in oil prices. Secondly, we endogenize the rise or fall of oil prices for which these price changes are transmitted asymmetrically to the prices of gasoline and diesel.…”

Section: Literature Reviewmentioning

confidence: 99%

“…There are some papers that explore the existence the ‘rockets and feathers behaviour’ in the Spanish retail markets (see the Literature review section). However, following Martín‐Moreno, Pérez, and Ruiz () our study is innovative in four different ways: i) The methodological approach is different. All the papers focused on Spanish retail markets assumes exogenous zero threshold in the variation rate of oil prices to test for asymmetric responses.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Rockets and feathers behaviour in the Spanish gasoline and diesel market: New evidence

Martín‐Moreno

Pérez

Ruíz

2019

Bulletin of Econ Res

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In this paper we analyse the potential asymmetric response of retail prices for gasoline and diesel‐fuel to changes in oil prices for the Spanish economy and its relation with the so‐called ‘rockets and feathers’ behaviour. We show that the assumption made by previous studies, which use as the key explanatory variable the sign –positive or negative‐ of the change in international oil prices, is inadequate for the Spanish case and the magnitude of the change in international oil prices is also relevant. For small changes in international oil prices there is neither price asymmetry nor rockets and feathers behavior in the retail markets. However, price asymmetries in line with rockets and feathers behavior in retail gasoline and gasoil markets are present when these changes exceed a certain threshold. Following Martín‐Moreno et al. (2018) we first apply an Auto‐regressive Error Correction Model and endogenously estimate the threshold triggering the rockets and feathers behaviour. A time‐varying nature for the dynamic response of retail prices to oil price shocks is revealed when we estimate the TAR‐ECM model using rolling windows. Hence, in a second stage, we use a Markov‐switching estimation of the model to test the robustness of the results given its suitability to changing environments. This study could have relevant policy implications for the Spanish gasoline and gasoil retail markets due to the ongoing debate on the existence of a rockets and feathers behavior in gasoline and gasoil retail markets between the Spanish regulatory body and the oil companies.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Rockets and feathers behaviour in the Spanish gasoline and diesel market: New evidence

Martín‐Moreno

Pérez

Ruíz

2019

Bulletin of Econ Res

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“…Essentially their findings vary depending on the economy and the period analysed, the size of the sample, the time frequency of the observations, the econometric methodology used and the way asymmetry is defined. More recently, a number of studies on the rockets and feathers hypothesis have attempted to replicate results of previous studies, using mainly more sophisticated econometric techniques (see, inter alia, Kristoufeck and Lunackova (2015), Cook and Fosten (2019) and Martín-Moreno, Pérez, and Ruiz (2019).…”

Section: Introductionmentioning

confidence: 98%

Asymmetric price adjustment and the effects of structural reforms and low demand in the gasoline market: the case of Greece

Bragoudakis

Sideris

2021

Journal of Applied Economics

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The pricing mechanism in the gasoline market has often been the subject of public debate in Greece during the crisis years. Inefficient pricing could imply oligopolistic practices and losses to consumers' welfare. A way to test for inefficient pricing, is by testing for asymmetries in the adjustment of domestic gasoline prices to world oil price changes. The present paper tests for asymmetric adjustment of gasoline prices to oil price variations in the Greek market and examines whether the structural reforms that took place in the post-2010 period had any impact on the functioning of the market. The analysis applies a consistent threshold cointegration technique and makes use of the most recent observations at the lowest frequency available. The results provide evidence in favour of symmetric behaviour, just for the recent period. This may reflect competitive behaviour by suppliers who had to interact in a new institutional framework following the reforms.

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“…Some studies on oil have found non-linearity and have attempted to model it to generate good predictions. This was the main focus of Martín-Moreno et al . (2019a), who used the TAR-ECM and Markov-switching models to verify the existence of asymmetries in the pass-through of shocks in oil prices to diesel and gasoline prices in the European market.…”

Section: Methodsmentioning

confidence: 95%

“…They observed that for small changes in oil prices, there is no asymmetry, however when variations exceed the threshold, the phenomenon of rockets and feathers is observed in the retail market of gasoline and diesel oil. The methodology adopted is that of Mart ın-Moreno et al (2019a).…”

Section: Literature Reviewmentioning

confidence: 99%

Asymmetry in the prices of crude oil and diesel and gasoline prices in Brazil

Barbosa,

Sousa,

Besarria

et al. 2023

JES

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PurposeThe aim of this study was to determine if there are asymmetries in the pass-through of West Texas Intermediate (WTI) crude oil prices to its derivatives (diesel and gasoline) in the Brazilian market.Design/methodology/approachInitially, the future WTI oil price series was analyzed using the self-exciting threshold autoregressive (SETAR) and logistic smooth transition autoregressive (LSTAR) non-linear models. Subsequently, the threshold autoregressive error-correction model (TAR-ECM) and Markov-switching model were used.FindingsThe findings indicated high prices throughout 2008 due to the subprime crisis. The findings indicated high prices throughout 2008 due to the subprime crisis. The results indicated that there is long-term pass-through of oil prices in both methods, suggesting an equilibrium adjustment in the prices of diesel and gasoline in the analyzed period. Regarding the short term, the variations in contemporary crude oil prices have positive effects on the variations in fuel prices. Lastly, this behavior can partly be explained by the internal price management structure adopted during almost all of the analyzed period.Originality/valueThis paper contributes to the literature at some points. The first contribution is the modeling of the oil price series through non-linear models, further enriching the literature on the recent behavior of this time series. The second is the simultaneous use of the TAR-ECM and Markov-switching model to capture possible short- and long-term asymmetries in the pass-through of prices, as few studies have applied these methods to the future price of oil. The third and main contribution is the investigation of whether there are asymmetries in the transfer of oil prices to the price of derivatives in Brazil. So far, no work has investigated this issue, which is very relevant to the country.

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Evidence about asymmetric price transmission in the main European fuel markets: from TAR-ECM to Markov-switching approach

Cited by 12 publications

References 26 publications

Rockets and feathers behaviour in the Spanish gasoline and diesel market: New evidence

Rockets and feathers behaviour in the Spanish gasoline and diesel market: New evidence

Asymmetric price adjustment and the effects of structural reforms and low demand in the gasoline market: the case of Greece

Asymmetry in the prices of crude oil and diesel and gasoline prices in Brazil

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