Abstract
This article is concerned with disequilibrium regime switching model to capture different regimes in the US gasoline markets. The purpose is to illustrate potential regimes in gasoline market. Following a suggestion in Hunter and Tabaghdehi (Cointegration and US regional gasoline prices: testing market efficiency from the stationarity of price proportions. Brunel University Working Paper, 13-03, 2013a), gasoline markets may not be efficient either across regions or within local markets. The Markov model may also be used as a benchmark to make comparison with other methods. The finding specifies that deviations from long-run equilibrium have an effect on gasoline price dynamics and captures two different regimes of supply and demand in this market.
Highlights
This article is concerned with disequilibrium regime switching model to capture different regimes in the US gasoline markets
A significant positive income coefficient indicates that an increase in consumer income and automobile sales level may increase gasoline demand in the market
This result indicates that a 1% increase in the consumer income will increase the gasoline demand by 2.87% and it shows consumers are responsive to their income changes in changing gasoline demand
Summary
This article is concerned with disequilibrium regime switching model to capture different regimes in the US gasoline markets. Hunter and Tabaghdehi (2013a) examined gasoline price behaviour across different regions in the long-run and the short-run, specifying that the market structures and price dynamics may differ across regions. Vehicle manufacturers who might engage in a class action where such failure to impact their reputation and affect sales
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