Inventories and upstream gasoline price dynamics

This paper sheds new light on the asymmetric dynamics in upstream U.S. gasoline prices. The model is based on Pindyck's inventory model of commodity price dynamics. We show that asymmetry in gasoline price dynamics is caused by changes in the net marginal convenience yield: higher costs of marketing and storage lead to rising gasoline prices, whereas a drop in these costs lowers gasoline prices. The former effect is stronger. This indicates asymmetric dynamics. We also analyze the asymmetry across the sample by analyzing recursive and rolling regressions.

► We shed new light on the asymmetric dynamics in upstream U.S. gasoline prices. ► The asymmetry is caused by changes in the net marginal convenience yield. ► Higher/lower costs of marketing and storage lead to rising falling gasoline prices. ► The effect of higher costs on gasoline prices is stronger. ► This outcome is robust for samples that include the period after the mid-2000s.