Asymmetry – Resurrecting the Roots

19 Pages Posted: 24 Jan 2014

See all articles by Manuel Frondel

Manuel Frondel

RWI Leibniz Institute for Economic Research ; Ruhr University Bochum (RUB)

Christoph M. Schmidt

RWI - Leibniz-Insitut für Wirtschaftsforschung (RWI Essen); Ruhr-Universität Bochum (RUB); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)

Date Written: October 1, 2013

Abstract

This note attempts to reconcile a range of primary methods for dealing with price asymmetry, such as the approaches proposed by Tweeten and Quance (1969), Wolffram (1971) and Houk(1977). Using Wolffram’s stylized example, we first illustrate that the notion of asymmetry can be captured in a straightforward and highly intuitive manner in terms of first differences. While this asymmetry definition is more readily interpretable than the alternatives proposed by Wolff ram and Houk, we demonstrate that, theoretically, these definitions are equivalent. This conclusion also turns out to be true for Wolfframs’s stylized example. Using data on coffee consumption, however, we illustrate that, in practice, these approaches may yield divergent conclusions with respect to asymmetry. We argue that in such situations the asymmetry notion based on first differences should be preferred.

Keywords: D13, Q41

JEL Classification: irreversibility; decomposition approaches

Suggested Citation

Frondel, Manuel and Schmidt, Christoph M. and Vance, Colin, Asymmetry – Resurrecting the Roots (October 1, 2013). Ruhr Economic Paper No. 451. Available at SSRN: https://ssrn.com/abstract=2383794 or http://dx.doi.org/10.2139/ssrn.2383794

Manuel Frondel (Contact Author)

RWI Leibniz Institute for Economic Research ( email )

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Ruhr University Bochum (RUB) ( email )

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Bochum, NRW 44780
Germany

Christoph M. Schmidt

RWI - Leibniz-Insitut für Wirtschaftsforschung (RWI Essen) ( email )

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Essen, 45128
Germany
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Ruhr-Universität Bochum (RUB)

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Institute for the Study of Labor (IZA)

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany
0049-201-8149-237 (Phone)

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