Estimating Cost Pass through and asymmetric price transmission in the UK’s road fuels supply chain
Discuss this preprint
Start a discussion What are Sciety discussions?Listed in
This article is not in any list yet, why not save it to one of your lists.Abstract
This study examines the cost pass-through and price transmission mechanism within the supply chain of the UK’s road fuel sectors. Using newly utilized compiled updated datasets of 197 to 203 monthly observations from 2005 to 2021, I novelly estimate a significant amount of incomplete cost pass-through of a change in the input price to the wholesale price and a change in the wholesale price to the retail price of UK’s road fuels. I follow the empirical method of distributed lag models applied in Nakamura and Zerom (2010) and Deltas and Polemis (2024). Using double log specifications, the study reveals a 0.79% increase (decrease) in wholesale price after a 1% increase (decrease) in the input price. The study reveals an amount of incomplete cost pass-through of the wholesale to the retail price; in all three distinct cases of super unleaded, premium unleaded, and diesel as well as product heterogeneity in the degree of asymmetric price transmission. More specifically the study reveals negative asymmetric price transmission in the Uk’s road fuels sector. The study enhances robustness implementing the relatively new method of NARDL. JEL : D43; D41; D60
