Long- and short-run price asymmetries and hysteresis in the Italian gasoline market

• The pass-through of crude oil prices and exchange rate into gasoline prices is examined.
• We use an extended NARDL model to test for asymmetric reactions and hysteresis.
• Asymmetric pricing behaviour features only in the long run.
• The sign of the asymmetry differs between exchange rate and crude price changes.
• The results are robust to the inclusion of several variables usually related to asymmetry.

Using monthly data from 1994 to 2013 we study the long-run relation of the pre-tax retail prices of gasoline with crude price and the nominal exchange rate. We find a strongly significant long-run relation. We then use the nonlinear ARDL (NARDL) model to assess the asymmetries on both the short- and long-run elasticities, as well as the presence of hysteresis in the pricing behaviour. The estimation results confirm the presence of asymmetry in the long-run elasticities, with significant differences between the crude price and the exchange rate, as well as the presence of hysteresis in the relation between the retail price of gasoline and crude oil price.