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Do retail gasoline prices respond asymmetrically to cost shocks? The influence of Edgeworth Cycles
Author(s) -
Noel Michael
Publication year - 2009
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2009.00078.x
Subject(s) - economics , gasoline , asymmetry , econometrics , information asymmetry , monetary economics , microeconomics , chemistry , organic chemistry , physics , quantum mechanics
Asymmetric price cycles similar to Edgeworth Cycles are appearing in increasingly many retail gasoline markets in the United States and worldwide. The asymmetry in the cycles can give rise to a finding of asymmetric price responses to cost shocks (asymmetric passthrough). This article estimates asymmetric passthrough for the market of Toronto, which exhibits cycles, and decomposes it into two components—that part explainable by the cycles and that part driven by other unknown sources. Significant asymmetric passthrough is found, with increases passed through more quickly than decreases. A significant cause of the finding is the presence of the cycles themselves.