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Empirical Economics

, Volume 56, Issue 4, pp 1383–1412 | Cite as

Evidence about asymmetric price transmission in the main European fuel markets: from TAR-ECM to Markov-switching approach

  • José María Martín-MorenoEmail author
  • Rafaela Pérez
  • Jesús Ruiz
Article
  • 144 Downloads

Abstract

This paper presents new evidence on the existence of asymmetries in the transmission of shocks in oil prices in the main European fuel markets and their relation to the so-called rockets and feathers effect. Our approach differs from the existing literature in two ways: (1) the data used: we use forward prices rather than spot prices because fuel leaders use forward contracts to buy crude oil. (2) The methodological approach is different. We adopt a more sophisticated econometric model, the Markov-switching model, and use it to contrast the robustness of the results obtained with the TAR-ECM methodology with an endogenous threshold (nonzero threshold). In general, the results show evidence of an asymmetric response of gasoline and diesel prices to changes in the price of crude oil, both in the short-run and with respect to the adjustment towards long-run equilibrium. These price asymmetries fall in line with the “rockets and feathers” hypothesis.

Keywords

Price asymmetries Crude oil prices TAR-ECM Markov-switching estimation “Rockets and feathers” behaviour 

JEL Classification

C01 C51 D43 Q40 

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • José María Martín-Moreno
    • 1
    Email author
  • Rafaela Pérez
    • 2
  • Jesús Ruiz
    • 3
  1. 1.Dpto. Fundamentos del Análisis Económico e Historia e I.E and rede, Facultad de CC.EE.EEUniversidad de VigoVigoSpain
  2. 2.Departamento de Fundamentos del Análisis Económico IUniversidad Complutense de Madrid and ICAEMadridSpain
  3. 3.Departamento de Fundamentos del Análisis Económico IIUniversidad Complutense de Madrid and ICAEMadridSpain

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