Do retail gasoline prices respond asymmetrically to cost shocks? The influence of edgeworth cycles

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Abstract

Asymmetric price cycles similar to Edgeworth Cycles are appearing in increasingly many retail gasoline markets in the United States and worldwide. The asymmetry in the cycles can give rise to a finding of asymmetric price responses to cost shocks (asymmetric passthrough). This article estimates asymmetric passthrough for the market of Toronto, which exhibits cycles, and decomposes it into two components - that part explainable by the cycles and that part driven by other unknown sources. Significant asymmetric passthrough is found, with increases passed through more quickly than decreases. A significant cause of the finding is the presence of the cycles themselves.

Original languageEnglish
Pages (from-to)582-595
Number of pages14
JournalRAND Journal of Economics
Volume40
Issue number3
DOIs
StatePublished - 2009

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