Asymmetry

Abstract

This note resurrects a largely forgotten technique advanced by TWEETEN and QUANCE (1969) for capturing price asymmetries. Their study employs dummy variables that split up the price variable into two complementing explanatory terms capturing either increasing or decreasing input prices. This approach is criticized by WOLFFRAM (1971) for being mathematically incorrect. He proposes an alternative technique based on price differences, which has since established itself as the primary method for dealing with price asymmetry. We challenge WOLFFRAM’s critique and show that the TWEETEN and QUANCE approach provides for a consistent estimation method that is more readily interpretable than WOLFFRAM’s alternative.