Original scientific paper

https://doi.org/doi.org/10.2478/bsrj-2024-0022

Estimating Asymmetric Fuel Price Responses in Croatia

Karol Szomolányi ; University of Economics in Bratislava, Slovakia
Martin Lukáčik orcid.org/0000-0002-1699-6450 ; University of Economics in Bratislava, Slovakia
Adriana Lukáčiková ; University of Economics in Bratislava, Slovakia

Abstract

Background: According to many studies, the transmission of oil prices to retail fuel prices is asymmetric. Fuel prices react faster if oil prices rise and more slowly if oil prices fall. Different standard econometric procedures lead to different results. The Linex approach, which is based on formulating the non-linear adjustment cost function, reflects the theory. It uses the generalised method of moments to estimate the reaction functions, which demands many observations. Objectives: The paper investigates the price asymmetry in the Croatian retail fuel market using standard approaches and the Linex approach. Methods/Approach: The simple and dynamic asymmetry models, error correction models, threshold autoregressive co-integration, and the Linex approach are used to verify the hypothesis of asymmetric reactions of gasoline and diesel prices in Croatia. Results The results using the standard methods are mixed, while the Linex approach indicates price asymmetry, the size of which is measured with the average price bias. The results correspond to other studies worldwide. Conclusions The authors' preferred Linex approach detects price asymmetries, even with large data samples with frequent changes in trends and volatilities. According to the approach, the question is not whether prices are formed asymmetrically but the size of the asymmetry.

Keywords

retail prices; error correction model; threshold autoregressive cointegration; linear-exponential adjustment cost function; generalised method of moments

Hrčak ID:

320839

URI

https://hrcak.srce.hr/320839

Publication date:

22.9.2024.

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