Fuel price co-movements among France, Germany and Italy: A time-frequency investigation

Abstract

We investigate the co-movements of fuel prices among France, Germany and Italy, using weekly data from January 3, 2005 to November 9, 2020 and making use of a time-frequency framework. Our wavelet coherence analysis indicates strong co-movements at medium and small frequencies, which are largely driven by the international oil prices. Further, when we implement a partial wavelet coherence method and control for the effect of crude oil prices, we notice that the co-movements diminish. They manifest themselves more strongly between France and Italy, and Germany and France whereas this is true only for a smaller extent between Italy and Germany. The fuel taxes negatively affect the price co-movements. At the same time, the co-movements of gasoline prices are stronger compared with those recorded by diesel prices. Our findings highlight the important role of international oil prices in driving fuel prices in the medium and long run, the heterogeneity of the European fuel tax systems, and the lack of a real cost competition relying on fuel price dynamics.