This paper examines how pre-tax petrol and diesel prices in New Zealand respond to changes in crude oil prices using an asymmetric error correction model. Our results show that oil companies adjust ...diesel prices upwards faster than they adjust them downwards, and the difference is statistically significant. However we find no statistical evidence for an asymmetry in the adjustment of petrol prices even though the magnitude of estimated coefficients suggests a faster response to rising prices. As diesel pricing is not as competitive as petrol pricing, calls for further government actions and monitoring of the oil market may be justified. Our findings also have important implications for the conduct of monetary policy as the pass-through of crude oil price changes can affect cost-push inflation.
This paper provides new insight into the relationship between inflation and the setting of individual prices by examining a large data set of Mexican consumer prices covering episodes of both low and ...high inflation. When the annual rate of inflation is low (below 10%-15%), the frequency of price changes comoves weakly with inflation because movements in the frequency of price decreases and increases partly offset each other. In contrast, the average magnitude of price changes correlates strongly with inflation because it is sensitive to movements in the relative shares of price increases and decreases. When inflation rises beyond 10%-15%, few price decreases are observed and both the frequency and average magnitude are important determinants of inflation. I show that a menu-cost model with idiosyncratic technology shocks predicts the average frequency and magnitude of price changes well over a range of inflation similar to that experienced by Mexico.
Catering through Nominal Share Prices BAKER, MALCOLM; GREENWOOD, ROBIN; WURGLER, JEFFREY
The Journal of finance (New York),
December 2009, Volume:
64, Issue:
6
Journal Article
Peer reviewed
Open access
We propose and test a catering theory of nominal stock prices. The theory predicts that when investors place higher valuations on low-price firms, managers respond by supplying shares at lower price ...levels, and vice versa. We confirm these predictions in time-series and firm-level data using several measures of time-varying catering incentives. More generally, the results provide unusually clean evidence that catering influences corporate decisions, because the process of targeting nominal share prices is not well explained by alternative theories.
Since 2013, China has implemented a new retail price-cap regulation for refined oil together with a quota regulation for crude oil imports due to concerns about the negative impacts of oil price ...fluctuations. This study aims to explore for the first time the dynamics of China's gasoline price response to international oil market price fluctuations and the domestic price regulation. The analysis was conducted using the panel-asymmetric error correction model based on daily panel data of heterogeneous refiners. It is found that: (1) China's gasoline price exhibits an asymmetric response to the international crude oil price, with a strong, rapid response to crude oil price increases but a delayed and long-lasting response to decreases; (2) the price response to price regulation is symmetric at the industry level but asymmetric among different refiners, with state-owned refiners responding more to a regulated price increase, whereas private refiners respond more to a regulated price decrease; and (3) in the context of crude oil import regulation, China's gasoline price responds symmetrically to fuel oil price changes but asymmetrically to price regulation. This results in distortions in both the oil market and price response dynamics. It is therefore recommended that reforms should be enacted to relax the import quota policy and deregulate prices so as to correct these market distortions and accelerate the development of China's crude oil and refined products markets.
•The response asymmetry of China’s gasoline price is explored by introducing trade & price regulation with daily panel data.•Asymmetric response of heterogeneous refiners to price regulation coexists with symmetric response at industry level.•China’s gasoline price responds symmetrically to fuel oil price and asymmetrically to retail price regulation.
The inertia of the local currency prices of traded goods in the face of exchange rate changes is a well-documented phenomenon in International Economics. This paper develops a structural model to ...identify the sources of this local currency price stability and applies it to micro-data from the beer market. The empirical procedure exploits manufacturers' and retailers' first-order conditions in conjunction with detailed information on the frequency of price adjustments following exchange rate changes to quantify the relative importance of local non-traded cost components, markup adjustment by manufacturers and retailers, and nominal price rigidities in the incomplete transmission of such changes to prices. We find that, on average, approximately 60% of the incomplete exchange rate pass-through is due to local non-traded costs; 8% to markup adjustment; 30% to the existence of own brand price adjustment costs; and 1% to the indirect/strategic effect of such costs, though these results vary considerably across individual brands according to their market shares.
In many retail markets, prices rise faster than they fall. We develop a model of search with learning to explain this phenomenon of asymmetric price adjustments. By extending our static game analysis ...to the dynamic setting, we demonstrate that asymmetric price adjustments arise naturally. When a positive cost shock occurs, all the searchers immediately learn the true state; the search intensity, and hence the prices, fully adjust in the next period. When a negative cost shock occurs, it takes longer for nonsearchers to learn the true state, and the search intensity increases gradually, leading to slow falling of prices.
This paper extends the literature concerning non-linearity in oil-stock relationships by putting forward a new paradigm of sectoral and Islamic elements. We explore the asymmetric impact of oil price ...on Islamic stocks from a sectoral perspective using non-linear Autoregressive Distributed Lag cointegration methodology. The main advantage of this methodology relies on its ability to simultaneously capture the short- and long-run asymmetries through both positive and negative oil price shocks. Our results show weak linkages between oil price changes and the Islamic composite index. However, the nature and sensitivity of the reaction of stock prices to oil price shocks vary considerably across different sectors. In the longer horizon, the relationships between oil price and many Islamic sectoral stocks tend to follow a nonlinear pattern. Furthermore, the behavior of the real economic sectors indices reflects the performance of the composite index that is oil price-resistant. During the turbulent period after 2008, the response of the sectoral indices to oil price movements witnessed notable changes where the sectoral gains from oil price drop that have been observed during the period of study have been found to diminish after 2008. Our finding is in line with the argument that the Islamic composite index is grounded more on and within the real sectors. These findings are robust when considering different oil proxies and different data time-frequencies.
•We explore the asymmetric impact of oil price on Islamic stocks from a sectoral perspective.•NARDL methodology simultaneously captures the asymmetries through both positive and negative oil price shocks.•The sensitivity of the reaction of stock prices to oil price shocks varies considerably across different sectors.•The sectoral gains from oil price drop that have been observed during the period of study diminish after 2008.
•The results confirm a price-dampening merit order effect of RES.•A rise of wind and solar leads to a fall of all quantiles of electricity prices.•Solar is more successful in reducing the occurrence ...of positive price spikes.•Solar does not decrease low quantiles of the price distribution as strong as wind.
The literature on renewable energy sources indicates that an increase of the intermittent wind and solar generation affects significantly the distribution of electricity prices. In this article, the influence of two types of renewable energy sources (wind and solar photo voltaic) on the level and variability of German electricity spot prices is analyzed. The quantile regression models are built to estimate the merit order effect for different quantiles of electricity prices. The results indicate that both types of renewable generations have a similar, negative impact on the price level, approximated by the price median. When the price volatility, measured by the inter-quantile range (IQR), is considered, the outcomes show that wind and solar influence prices differently. Conditional on the level of the total demand, the wind generation would either increase (when the demand is low) or decrease (when the demand is high) the IQR. Meanwhile, the increase of solar power stabilizes the price variance for moderate demand level. Thus, policy supporting the development and integration of RES should search for a balance between the wind and solar power.
This paper explores similarities and differences between the run-up of oil prices in 2007–08 and earlier oil price shocks, looking at what caused these price increases and what effects they had on ...the economy. Whereas previous oil price shocks were primarily caused by physical disruptions of supply, the price run-up of 2007–08 was caused by strong demand confronting stagnating world production. Although the causes were different, the consequences for the economy appear to have been similar to those observed in earlier episodes, with significant effects on consumption spending and purchases of domestic automobiles in particular. Absent those declines, it is unlikely that the period 2007Q4–2008Q3 would have been characterized as one of recession for the United States. This episode should thus be added to the list of U.S. recessions to which oil prices appear to have made a material contribution.
•Diesel price shocks have a weaker power of predicting downstream prices than upstream prices along the food supply chain.•Causality from upstream prices to downstream prices is more significant than ...from downstream to upstream.•Food prices do not respond to diesel price shocks after 15 months.•The direction of causality between upstream and downstream prices is market specific.
The literature on the transmission of oil price shocks to prices along the food supply chain has widely ignored how shocks upstream differ from downstream ones. This article examines this issue by modelling upstream and downstream diesel price shocks along the nutritional high-value food supply chain in São Paulo. Using a Vector Error Correction approach and monthly data from July 2001 to December 2013, we estimate short-run and long-run dynamics in producer and retail prices of meat, eggs, dairy and fats & oil due to changes in the average monthly price of diesel. The results of the Granger causality analysis show that the price of diesel cannot be used to predict the behaviour of producer prices in all the markets under study, and the price of diesel predicts retail price only in the egg market. This result is in line with the nature of price controls in Brazil. As of January 2002, the prices charged by distributors and retailers have been liberalized, although wholesale prices of the derivatives, including that of diesel, continue to be set by the state oil company with the objective of controlling inflationary pressures. The results of the response of food prices to diesel price shocks show a positive response of both upstream and downstream prices of egg and dairy products both upstream and downstream, while the opposite direction occurs in the fat and meat markets albeit the initial positive shock of the producer price of meat. The findings of the study show the important role of public policy in determining the nature of price transmission along the food supply chain.
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