Price Pass-Through in US Gasoline Markets

Abstract

Using an error-correction model in a seemingly unrelated regression framework, we examine regional differences in the price pass-through from crude oil spot prices to retail gasoline pump prices. We show that regional differences do exist both in the short run and long run adjustment process. Depending on the region, a $1 per barrel change in crude oil prices results in a change in retail gasoline pump prices somewhere between 2.52¢ and 2.65¢. We examine the presence of the rockets and feathers phenomenon using both a single period coefficient tests and multiple period impulse response functions.