Econometric Models of Asymmetric Price Transmission
University of Milan-Bicocca, Italy - Department of Economics, Quantitative Methods and Business Strategies (DEMS); Fondazione Eni Enrico Mattei (FEE), Milan, Italy; Università degli Studi di Milano-Bicocca - Department of Economics, Quantitative Methods and Business Strategies (DEMS)
Fondazione Eni Enrico Mattei (FEEM)
FEEM Working Paper No. 100.05
In this paper we review the existing empirical literature on price asymmetries in commodities, providing a way to classify and compare different studies which are highly heterogeneous in terms of econometric models, type of asymmetries and empirical findings. Relative to the previous literature, this paper is novel in several respects. First, it presents a detailed and updated survey of the existing empirical contributions on the existence of price asymmetries in the transmission mechanism linking input prices to output prices. Second, this paper presents an extension of the traditional distinction between long-run and short-run asymmetries to new categories of asymmetries, such as: contemporaneous impact, distributed lag effect, cumulated impact, reaction time, equilibrium and momentum equilibrium adjustment path, regime effect, regime equilibrium adjustment path. Third, each empirical study is critically discussed in the light of this new classification of asymmetries. Fourth, this paper evaluates the relative merits of the most popular econometric models for price asymmetries, namely autoregressive distributed lags, partial adjustments, error correction models, regime switching and vector autoregressive models.
Number of Pages in PDF File: 85
Keywords: Price asymmetries, Cointegration, Partial adjustment, Threshold regime switching
JEL Classification: C22, D40, Q40working papers series
Date posted: November 9, 2005
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