Lags in the response of gasoline prices to changes in crude oil prices: The role of short-term and long-term shocks

The empirical results support the conjecture of two types of cost shocks. As such, we find that lags in the response of retail gasoline prices to changes in crude oil prices may be due to the fact that approximately 97% of changes in crude oil prices are viewed as short-term by the market participants. When two types of shocks are considered, there is large difference between the cumulative response function of gasoline prices to long-term and short-term shocks to crude oil prices. As such, this paper adds to our understanding of the price stickiness of gasoline prices.