Inventories and Wholesale Gasoline Price Dynamics

Abstract

This paper sheds new light on the asymmetric short-run dynamics of US gasoline prices. The odel is inspired by Pindyck’s inventory model of commodity price dynamics, that stresses the importance of volatility in crude oil markets for short-run market dynamics. We show that after February 1999 asymmetry in gasoline price dynamics is caused by changes in the net marginal convenience yield: higher costs of marketing and storage lead to rising gasoline prices, whereas a drop in these costs hardly affects gasoline prices.

Keywords: Asymmetry, Gasoline prices, Inventories, Volatility

JEL Classification: C22, D43, E31, L11, Q40