Time Lags in the Pass-Through of Crude-Oil Prices – Big Data Evidence from the German Gasoline Market

16 Pages Posted: 22 Dec 2015

See all articles by Manuel Frondel

Manuel Frondel

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

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)

Alexander Kihm

German Aerospace Center

Multiple version iconThere are 2 versions of this paper

Date Written: August 21, 2015

Abstract

This note investigates the pass-through of global Brent oil notations to fuel prices across the oligopoly of retail majors in Germany. We assemble a high-frequency panel data set that encompasses millions of price observations and allows us to distinguish effects by brand. Upon establishing a cointegrating relationship between fuel and crude-oil prices using daily data, we estimate an error-correction model (ECM) and find that (1) the pass-through of oil prices critically depends on the number of time lags included in the ECM, (2) strict adherence to classical information criteria for determining lag length yields extremely long pass-through durations, and (3) the estimated impulse response functions are virtually identical across brands, irrespective of the lag count, suggesting a high degree of competition among brands.

Keywords: Retail markets; competition; error-correction model

JEL Classification: D12, Q41

Suggested Citation

Frondel, Manuel and Vance, Colin and Kihm, Alexander, Time Lags in the Pass-Through of Crude-Oil Prices – Big Data Evidence from the German Gasoline Market (August 21, 2015). Available at SSRN: https://ssrn.com/abstract=2706537 or http://dx.doi.org/10.2139/ssrn.2706537

Manuel Frondel (Contact Author)

RWI Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
45128 Essen
Germany

Ruhr University Bochum (RUB) ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Colin Vance

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

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

HOME PAGE: http://www.rwi-essen.de

Alexander Kihm

German Aerospace Center ( email )

Sportallee 54a
Hamburg, 22335
Germany

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