Do retail gasoline prices rise more readily than they fall?: A threshold cointegration approach |
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Authors: | Salim Al-Gudhea Turalay Kenc Sel Dibooglu |
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Institution: | aJoatha Consulting, P.O. Box 94711, Riyadh 11614, Saudi Arabia;bSchool of Management, Bradford University, Bradford, West Yorkshire BD9 4JL, UK;cDepartment of Economics, University of Missouri-St. Louis, One University Blvd., St. Louis, MO 63121, United States |
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Abstract: | This paper revisits the controversy over whether retail gasoline prices respond to increases in upstream prices more rapidly than decreases. Using threshold and momentum models of cointegration and daily data at different stages in the distribution chain, we find that transmission between upstream and downstream prices is mostly asymmetric in the momentum model: increases in upstream prices are passed on to downstream prices more quickly than decreases. We distinguish between small and large shocks and show that the asymmetry is more pronounced for small shocks, which may be due to consumer search costs. |
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Keywords: | Gasoline prices Asymmetric adjustment |
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