Ruhr Economic Papers
Ruhr Economic Papers #451
Asymmetry – Resurrecting the Roots
RWI, 11/2013, 17 S./p., 8 Euro, ISBN 978-3-86788-508-9 DOI: 10.4419/86788508download
This note attempts to reconcile a range of primary methods for dealing with price asymmetry, such as the approaches proposed by Tweeten and Quance (1969), Wolffram (1971) and Houk(1977). Using Wolffram’s stylized example, we first illustrate that the notion of asymmetry can be captured in a straightforward and highly intuitive manner in terms of first differences. While this asymmetry definition is more readily interpretable than the alternatives proposed by Wolffram and Houk, we demonstrate that, theoretically, these definitions are equivalent. This conclusion also turns out to be true for Wolfframs’s stylized example. Using data on coffee consumption, however, we illustrate that, in practice, these approaches may yield divergent conclusions with respect to asymmetry. We argue that in such situations the asymmetry notion based on first differences should be preferred.
JEL-Classification: D13, Q41
Keywords: Irreversibility; decomposition approaches