Time lags in the pass-through of crude-oil prices: Big data evidence from the German gasoline market
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Date
2015
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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.
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Keywords
retail markets, error-correction model, competition