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The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data
Author(s) -
GAUTIER ERWAN,
SAOUT RONAN LE
Publication year - 2015
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12237
Subject(s) - gasoline , economics , econometrics , shock (circulatory) , diesel fuel , replicate , monetary economics , duration (music) , producer price index , price level , mid price , statistics , mathematics , medicine , art , chemistry , physics , literature , organic chemistry , thermodynamics
Using millions of individual gasoline prices collected at a daily frequency, we examine the speed at which market prices of refined oil are transmitted to retail gasoline prices in France. For that, we estimate a reduced‐form model of state‐dependent pricing where thresholds triggering price changes are allowed to vary over time and depend on the duration since the last price change. We find that the degree of pass‐through of wholesale prices to retail gasoline prices is on average 0.77 for diesel and 0.67 for petrol and depend on local market characteristics. The duration for a shock to be fully transmitted into prices is about 10 days. There is no significant asymmetry in the transmission of wholesale price to retail prices. Finally, the duration since the last price change has a significant effect on thresholds triggering price changes but a large variance of idiosyncratic shocks on thresholds is also crucial to replicate the size distribution of price changes.