Ruhr Economic Papers

Ruhr Economic Papers #573

Time Lags in the Pass-Through of Crude-Oil Prices – Big Data Evidence from the German Gasoline Market

by Manuel Frondel, Colin Vance and Alexander Kihm

RUB, RWI, 08/2015, 14 S./p., 8 Euro, ISBN 978-3-86788-659-8 DOI: 10.4419/86788659

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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.

JEL-Classification: D12, Q41

Keywords: Retail markets; competition; error-correction model

Published as:

Frondel, M., C. Vance and A. Kihm (2016), Time Lags in the Pass-Through of Crude-Oil Prices - Big Data Evidence from the German Gasoline Market. Applied Economics Letters 23 (10): 713-717. DOI: 10.1080/13504851.2015.1102836 

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