Asymmetric exchange rate and oil price pass-through in motor fuel market: A microeconometric approach

Abstract

We analyze the response of retail motor fuel prices to oil price and exchange rate changes. Using a novel microdata approach considering price spells separately; we find evidence for pass-through asymmetry in Turkish motor fuel market based on the sign, source and size of cost shocks. Exchange rate (oil price) is the main factor fueling asymmetry in case of cost increases (decreases). The smaller the magnitude of positive cost shock the higher the pass-through is. Sign asymmetry is reversed during crisis. Market structure is suggested as the main explanation of the asymmetry, yet there are factors limiting the use of market power.