Stickiness of gasoline prices in the Czech Republic: Evaluation of different models of price adjustment
| Author: | Bc. David Svačina |
|---|---|
| Year: | 2013 - summer |
| Leaders: | prof. PhDr. Ladislav Krištoufek Ph.D. |
| Consultants: | |
| Work type: | Bachelors |
| Language: | English |
| Pages: | 82 |
| Awards and prizes: | B.A. with distinction from the Dean of the Faculty of Social Sciences for an extraordinarily good bachelors diploma thesis. |
| Link: | |
| Abstract: | There are numerous price stickiness hypotheses, explanations of why prices do not instantly adjust to costs and demand shocks, with distinct implications on the form of stickiness (e.g., speed of adjustment, different path based on sign and magnitude of shocks). This paper identifies those most widespread in the economic literature and tests their consistency with the pattern of adjustment present in retail gasoline market, in a setting where their thorough analysis has not yet been done. In particular, data set consists of daily observations on three variables over the 2007–2013 period: average retail price of gasoline in Jesenik county, Czech Republic; Brent crude oil price in USD; and CZK/USD exchange rate. Using a transformation of the error-correction model, with both first-differenced variables and their levels at the last lag, only partial adjustments theory, characterized by a gradual adjustment to costs shocks over an extended period of time due to consumers’ aversion to abrupt price changes, is found consistent with our data. This theory explains observed lags in response of retail price to Brent and exchange rate movements, but is neutral towards significant asymmetries in sign and among variables. Therefore, the form of price stickiness present in our data cannot be comprehensively explained by any of the current hypotheses. |
