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Who is responsible for asymmetric fuel price adjustments? An application of the threshold cointegrated VAR model

Author

Listed:
  • Emilia Gosińska

    (Chair of Econometric Models and Forecasts, University of Lodz, Lodz, Poland)

  • Katarzyna Leszkiewicz-Kędzior

    (Faculty of Economics and Sociology; Chair of Econometric Models and Forecasts, University of Lodz, Lodz, Poland)

  • Aleksander Welfe

    (Faculty of Economics and Sociology, University of Lodz, Lodz, Poland)

Abstract

The purpose of the paper is to test the hypothesis about asymmetric price transmission between the fuel markets. The distribution chain is considered at three levels: the European wholesale market, the domestic wholesale market, and the domestic retail market. It is shown that between the European and domestic wholesale markets fuel prices adjust symmetrically and asymmetrically between the domestic wholesale market and the retail market. This finding confirms that the most probable cause of asymmetric price adjustments (especially in new EU member states) is the behaviour of petrol stations and not of oil companies. The empirical analysis is conducted using an appropriately modified Hansen-Seo method. The procedure, which has until recently been used to estimate bivariate threshold models, prevents the presence of the constant in the cointegrating vector entailing the risk of severe distortion of the estimation results. Moreover, the interpretation of a dummy variable present in the CVAR equation as a result of a data generating process distortion is limited by its presence in the cointegration space.

Suggested Citation

  • Emilia Gosińska & Katarzyna Leszkiewicz-Kędzior & Aleksander Welfe, 2020. "Who is responsible for asymmetric fuel price adjustments? An application of the threshold cointegrated VAR model," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 20(1), pages 59-73.
    • Handle: RePEc:bic:journl:v:20:y:2020:i:1:p:59-73
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    References listed on IDEAS

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    More about this item

    Keywords

    Threshold cointegration; threshold cointegrated VAR; modified Hansen-Seo method; fuel pricing; asymmetric price adjustments;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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