Ruhr Economic Papers

Ruhr Economic Papers #451

Asymmetry – Resurrecting the Roots

by Manuel Frondel, Christoph M. Schmidt and Colin Vance

RWI, 11/2013, 17 S./p., 8 Euro, ISBN 978-3-86788-508-9 DOI: 10.4419/86788508

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Abstract

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

Published as:

Frondel, M., C. M. Schmidt and C. Vance (2016), Asymmetry: Resurrecting the Roots. The Quarterly Review of Economics and Finance (60): 201-206. DOI: 10.1016/j.qref.2015.09.002 

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