Regional Gasoline Price Dynamics

A large literature has argued that gasoline prices respond more rapidly to increases in oil prices than to decreases in oil prices. Moreover, some of this literature has found heterogeneous asymmetry in gas price responses across cities. Here, we reconsider the causes of heterogeneous asymmetric pass-through. Consistent with the previous literature, we find heterogeneity in the magnitudes of asymmetric pass-through across cities. We also find a large number of cities that exhibit no asymmetries. We then examine whether heterogeneous asymmetry results from city-level differences in (i) the demand for gasoline, (ii) the supply of gasoline (proxied by the distance from Cushing, Oklahoma), or the cities' fiscal environments (proxied by the level of taxes). We examine whether these characteristics affect either the magnitudes of the asymmetries or the presence of asymmetries. While we find that city-level characteristics cannot (robustly) explain variation in the magnitudes of the asymmetries, they do seem to affect the probability that a city experiences asymmetric pass-through.