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


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.


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

JEL Classification

C01 C51 D43 Q40 


  1. Asplund M, Eriksson R, Friberg R (2000) Price adjustments by a gasoline retail chain. Scand J Econ 102(1):101–121CrossRefGoogle Scholar
  2. Al-Gudhea S, Kenc T, Dibooglu S (2007) Do retail gasoline prices rise more readily than they fall?: a threshold cointegration approach. J Econ Bus 59(6):560–574CrossRefGoogle Scholar
  3. Bacon GW (1991) Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes. Energy Econ 13:211–218CrossRefGoogle Scholar
  4. Bachmeier LJ, Griffin JM (2003) New evidence on asymmetric gasoline price responses. Rev Econ Stat 85(3):772–776CrossRefGoogle Scholar
  5. Balaguer J, Ripollés J (2012) Testing for price response asymmetries in the Spanish fuel market. New evidence from daily data. Energy Econ 24:2066–2071CrossRefGoogle Scholar
  6. Balke NS, Brown SP, Yücel M (2001) Crude oil and gasoline prices: an asymmetric relationship? Econ Financ Policy Rev Q1:2–11Google Scholar
  7. Bermingham C, O’Brien D (2011) Testing for asymmetric pricing behaviour in Irish and UK petrol and diesel markets. Energy J 3(32):27–58Google Scholar
  8. Bettendorf L, Van der Geest A, Verkevisser M (2003) Price asymmetry in the Dutch retail gasoline market. Energy Econ 25:669–689CrossRefGoogle Scholar
  9. Borenstein S, Cameron AC, Gilbert R (1997) Do gasoline prices respond asymmetrically to crude oil price changes? Quat J Econ 112:305–339CrossRefGoogle Scholar
  10. Boroumand RH, Goutte S, Porcher S, Porcher T (2016) Asymmetric evidence of gasoline price responses in France: A Markov-switching approach. Economic Modelling 52:467–476CrossRefGoogle Scholar
  11. Contín-Pilart I, Correljé AF, Palacios MB (2009) Competition, regulation, and pricing behaviour in the Spanish retail gasoline market. Energy Policy 37:219–228CrossRefGoogle Scholar
  12. Douglas CC (2010) Do gasoline prices exhibit asymmetry? Not usually!. Energy Econ 32(4):918–925CrossRefGoogle Scholar
  13. ECB (2010) Energy markets and the Euro area macroeconomy. ECB Occasional Paper, No, p 119Google Scholar
  14. Galeotti M, Lanza A, Manera M (2003) Rockets and feathers revisited: an international comparison on European gasoline markets. Energy Econ 25:175–190CrossRefGoogle Scholar
  15. Grasso M, Manera M (2007) Asymmetric error correction models for the oil–gasoline price relationship. Energy Policy 35:156–177CrossRefGoogle Scholar
  16. Hale and Twomey Limited (2008). 2007 ACCC report into Australian petrol prices: review of applicability to the New Zealand petrol market: WellingtonGoogle Scholar
  17. Hamilton JD (1994) Time series analysis. Princeton University Press, PrincetonGoogle Scholar
  18. Hansen BE (1997) Inference in TAR models. Stud Nonlinear Dyn Econom 2:1–14CrossRefGoogle Scholar
  19. Karagiannis S, Panagopoulos Y, Vlamis P (2015) Are unleaded gasoline and diesel price adjustment symmetric? A comparison of the four largest EU retail fuel markets. Econ Model 48:281–291CrossRefGoogle Scholar
  20. Kim C (1993) Dynamic linear models with Markov-switching. J Econom 60:1–22CrossRefGoogle Scholar
  21. Kirchgässner G, Kübler K (1992) Symmetric or asymmetric price adjustments in the oil market: an empirical analysis of the relations between international and domestic prices in the Federal Republic of Germany, 1972–1989. Energy Econ 14(3):171–185CrossRefGoogle Scholar
  22. Lamotte O, Porcher T, Schalck C, Silvestre S (2013) Asymmetric gasoline price responses in France. Appl Econ Lett 20:457–461CrossRefGoogle Scholar
  23. Pal D, Mitra SK (2015) Asymmetric impact of crude price on oil product pricing in the United States: an application of multiple threshold nonlinear autoregressive distributed lag model. Econ Model 51:436–443CrossRefGoogle Scholar
  24. Peltzman S (2000) Price rise faster than they fall. J Polit Econ 108:466–502CrossRefGoogle Scholar
  25. Pesaran M, Shin Y, Smith RJ (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econom 16:289–326CrossRefGoogle Scholar
  26. Polemis ML (2012) Competition and price asymmetries in the Greek oil sector: an empirical analysis on gasoline market. Empir Econ 43:789–817CrossRefGoogle Scholar
  27. Polemis ML, Panagiotis NF (2013) Do gasoline prices respond asymmetrically in the euro zone area? Evidence from cointegrated panel data analysis. Energy Policy 56:425–433CrossRefGoogle Scholar
  28. Radchenko S (2005a) Lags in the response of gasoline prices to changes in crude oil prices: the role of short-term and long-term shocks. Energy Econ 27(4):573–602CrossRefGoogle Scholar
  29. Reilly B, Witt R (1998) Petrol price asymmetries revisited. Energy Econ 20(3):297–308CrossRefGoogle Scholar
  30. Shin D (1994) Do product prices respond symmetrically to changes in crude oil prices? OPEC Rev 18:137–157CrossRefGoogle Scholar

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

Personalised recommendations