Asymmetric Pass-Through in U.S. Gasoline Prices
U.S. Federal Trade Commission Bureau of Economics Working Paper No. 302
47 Pages Posted: 25 Jun 2010 Last revised: 11 Sep 2012
Date Written: September 11, 2012
This paper presents new evidence of asymmetric pass-through, the notion that upward cost shocks are passed through faster than downward cost shocks, in U.S. gasoline prices. Much of the extant literature comes to seemingly contradictory conclusions about the existence of an asymmetry, though the differences may be due to different aggregation (both over time and geographic markets) and the use of different price series including crude oil, wholesale, and retail gasoline prices. I utilize a large and detailed dataset to determine where evidence of a pass-through asymmetry exists, and how it depends on the aggregation and price series chosen by the researcher. Using the error correction model, I find evidence of pass-through asymmetry in the response of daily and weekly retail prices to wholesale rack price changes, though the magnitude varies by geographic market. On average, retail prices rise three to four times as fast as they fall.
Keywords: Gasoline Prices, Pass-Through
JEL Classification: L00, L71, L11
Suggested Citation: Suggested Citation