From oil to consumer energy prices: How much asymmetry along the way?

- We examine the response of fuel prices to oil price increases and decreases.
- The analysis uses nonlinear impulse response functions and forecast accuracy tests.
- Evidence of asymmetric responses emerges for the U.S. from both approaches.
- Asymmetries arise in some euro area countries only at very short horizons.

A longstanding question in macroeconomics is whether fuel prices react more to increases than to decreases of the price of oil. This paper analyzes the response of weekly gasoline and gasoil prices to oil prices in the U.S., the euro area and the four largest euro area countries (Germany, France, Italy and Spain) using nonlinear impulse response functions and forecast accuracy tests. While for the U.S. both approaches point to the presence of asymmetries in the adjustment of retail prices, for the euro area the evidence is mixed.