Asymmetric price transmission in the US and German fuel markets: a quantile autoregression approach

This paper proposes a new econometric model for asymmetric price transmissions. We estimate long-run equilibrium equations between upstream and downstream prices and use quantile autoregression to estimate a quantile-dependent adjustment behaviour for lower and upper quantiles of the residual process. We develop a bootstrap cointegration test which is suitable for cointegration relationships that exhibit quantile-dependent adjustment. Furthermore, we introduce the appropriate statistical tests for across-quantile comparisons and overall quantile effects. The methodology is applied to the US and German gasoline and diesel markets. Our empirical results suggest that asymmetries can be found in the early stages of the production chain, but are not completely transferred to retail prices.