Asymmetric evidence of gasoline price responses in France: a Markov-switching approach

Raphaël Homayoun BOROUMAND, Thomas PORCHER, Stephane GOUTTE, Simon PORCHER

It has been documented that retail gasoline prices respond more quickly to increases in wholesale prices than 16
they do to decreases in wholesale prices. However, there is little empirical evidence that identifies the link 17
between the pass-through of oil prices to gasoline in different volatility regimes. Using a Markov-switching 18
model on weekly observations of fuel prices from 1990 to 2011, we find that fuel prices respond significantly 19
faster to increases in crude oil prices than to decreases in crude oil prices. However, when volatility is low, the 20
transmittal of a price change from crude oil to retail fuel is higher compared to periods of high volatility. These 21
results provide important information on the behavior of retailers. The findings of this paper therefore provide 22
clues for better understanding the recent dynamics of fuel prices and some policy implications.

Publication type: 
Scientific Article
Date de parution: 
Economic Modelling