Re-examining the Asymmetric Gasoline Pricing Mechanism in EU: A Panel Threshold Analysis

Chen, Chaoyi and Polemis, Michael and Stengos, Thanasis (2018): Re-examining the Asymmetric Gasoline Pricing Mechanism in EU: A Panel Threshold Analysis.

Abstract

We employ a pooled panel threshold model along the lines of Seo and Shin (2016) within an error correction framework to re-investigate the “rockets and feathers” hypothesis. The empirical results confirm the superiority of the threshold model compared to the baseline linear specifications, while attributing the asymmetric gasoline adjustment mechanism to Exchange Rate Pass Through (ERPT).

• Item Type: MPRA Paper
• Language: English
• Keywords: Gasoline asymmetry; Threshold; ERPT; Error Correction Model; EU
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C24 - Truncated and Censored Models ; Switching Regression Models ; Threshold Regression Models; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices

References

Borenstein, S., Cameron, C.A., Gilbert, R. (1997) Do gasoline prices respond asymmetrically to crude oil price changes? Quarterly Journal of Economics 112, 305-339.

Deltas, G. (2008) Retail gasoline price dynamics and local market power. Journal of Industrial Economics 56, 613-628.

Feenstra, R.C. (1989) Symmetric Pass-Through of Tariffs and Exchange Rates Under Imperfect Competition: An Empirical Test, Journal of International Economics. 27(1,2), 25-45.

Galeotti, M., Lanza, A., Manera, M. (2003) Rockets and feathers revisited: An international comparison on European gasoline markets. Energy Economics 25, 175-190.

Godby, R., Lintner, A., Stengos, T., Wandschneider, B. (2000) Testing for asymmetric pricing in the Canadian retail gasoline market, Energy Economics, 22(3): 349-368.

Goldberg, P., Knetter, M. (1997) Goods Prices and Exchange Rates: What Have We Learned? Journal of Economic Literature, 35(3), 1243-1272.

Greenwood-Nimmo, M., Shin, Y. (2013) Taxation and the asymmetric adjustment of selected retail energy prices in the UK. Economics Letters 121, 411-416.

Hansen, B.E., (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93(2), 345-368.

Kourtellos, A., Stengos, T. Ming, T.C (2016). Structural Threshold Regression, Econometric Theory, 32(04): 827-860.

Kourtellos., A., Stengos, T., Sun, Y (2017). Endogeneity in Semiparametric Threshold Regression. Working Paper Series 17-13, The Rimini Centre for Economic Analysis.

Seo, M.H., and Shin, Y (2016). Dynamic panels with threshold effect and endogeneity, Journal of Econometrics, 195(2), 169-186.