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Exploring the life of price responses in fuel markets. Mean group data or mean group estimator?

Jacint Balaguer and Jordi Ripollés ()
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Jordi Ripollés: Department of Economics, Universitat Jaume I, Castellón, Spain

No 2016/16, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: Empirical studies on vertical price transmission in retail fuel markets commonly use mean group data of petrol stations. In this paper a simulation approach is employed to illustrate that, in this case, the persistence of price responses tends to be overestimated. To explore the real extent of the problem, we apply the mean group (MG) and the mean group with common correlated effects (MG-CCE) estimators to individual data from petrol stations. When heterogeneity in the price-setting dynamics is captured by MG and MG-CCE estimators, persistence of retail price responses becomes considerably lower than the typical OLS estimations from mean group data would suggest.

Keywords: Fuel price responses; Cross-sectional aggregation; Dynamic persistence; Overestimation (search for similar items in EconPapers)
JEL-codes: C23 C51 L71 Q41 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2016
New Economics Papers: this item is included in nep-ene and nep-tre
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Persistent link: https://EconPapers.repec.org/RePEc:jau:wpaper:2016/16

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