Lags in the response of gasoline prices to changes in crude oil prices: The role of short-term and long-term shocks

Is there an asymmetry in the response of diesel and petrol prices to crude oil price changes? Evidence from New Zealand

“…13 The cost of the asymmetry can be estimated from the cumulative adjustment functions for equal increases and decreases in diesel prices (see Borenstein et al, 1997;Radchenko, 2005). Our estimates indicate that the total costs of equilibrium asymmetry on diesel prices following a 5% increase and a 5% decrease in the price of oil rise to about 1% after five weeks and then remain roughly constant at 2% after 20 weeks.…”

“…These are empirical questions that this study seeks to address. The results in the existing literature are mixed, with some studies finding asymmetric adjustment and others not (see, for example, Bacon (1991), Manning (1991), Reilly and Witt (1998) and Bachmeier and Griffin (2003) for the UK market; DuffyDeno (1996), Borenstein et al (1997), Borenstein and Shepard (2002) and Radchenko (2005) for the US market; Godby et al (2000) and Eckert (2002) for the Canadian market).…”

Nonlinear joint dynamics between prices of crude oil and refined products

“…In addition to the product inventory adjustment, some other factors may also lead to the spread between their shortterm and long-term correlations. (a) The fact that major changes in crude oil prices in the short-term are due to the activity of market participants that causes the lags in response of gasoline and other refined product prices to crude oil prices [43]. (b) Market power causes the short-term lag response of gasoline to crude oil shocks.…”

Bayesian Methods in Non-linear Time Series

“…Ang and Bekaert [2] report that the correlation between international equity returns is higher during bear markets relative to bull markets. Radchenko [64] shows that gasoline prices respond faster to a permanent oil price change compared to a transitory change. Finally, Sims and Zha [69] document abrupt changes of shocks to U.S. monetary policy, and Davig and Leeper [18] document the regime changes in fiscal policy.…”