Time lags in the pass-through of crude oil prices: big data evidence from the German gasoline market. Issue 10 (2nd July 2016)

• Record Type: Journal Article
• Authors: Frondel, Manuel; Vance, Colin; Kihm, Alex
• Is Part Of: Applied economics letters. Volume 23:Issue 10(2016)
• Page Start: 713
• Page End: 717
• Publication Date: 2016-07-02
• Subjects: Retail markets -- competition -- ECM; D12 -- Q41; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2015.1102836
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: This article 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 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.