Prague Economic Papers 2019, 28(2):196-234 | DOI: 10.18267/j.pep.693

Structural Change, Exchange Rate and the Asymmetric Adjustment of Retail Energy Prices in Europe

Jonathan E. Ogbuabor1, Anthony Orji2, Richardson K. Edeme3,*, Ezebuilo R. Ukwueze4
1 Department of Economics, University of Nigeria, Nsukka (jonathan.ogbuabor@unn.edu.ng) and Department of Economics and Related Studies, University of York, Heslington, York, United Kingdom (jonathan.ogbuabor@alumni.york.ac.uk)
2 Department of Economics, University of Nigeria, Nsukka (anthony.orji@unn.edu.ng)
3 Department of Economics, University of Nigeria, Nsukka (richard.edeme@unn.edu.ng
4 Department of Economics, University of Nigeria, Nsukka (ezebuilo.ukwueze@unn.edu.ng)

This paper examines the role of structural change in the asymmetric adjustment of retail energy prices following changes in crude oil costs. The paper also examines the pattern of adjustment in retail energy prices when exchange rate is accounted for as part of the marginal cost of importing crude oil in European countries with high oil import dependency ratio. The paper shows that the results of Greenwood-Nimmo and Shin (2013) no longer hold when the structural change in the relationship between retail energy prices and crude oil costs is taken into the consideration. The paper also cautions that studies like Kristoufek and Lunackova (2014) that failed to account for exchange rate as part of the marginal cost of importing oil for countries with high oil import dependency ratio may be misleading. In fact, the results of this paper further indicate that once the exchange rate effect is taken into consideration, the possibility of rent-seeking behaviour in the gasoline markets of Italy and Spain disappears; while the rockets and feathers effect observed in most of the ex-tax gasoline, diesel, domestic heating oil and industrial fuel oil markets vanishes.

Keywords: rockets and feathers effect, asymmetric adjustment of energy prices, nonlinear ARDL Model, global financial crisis, antitrust policy
JEL classification: C22, D40, F36, L40, Q43

Accepted: April 23, 2018; Published: April 1, 2019  Show citation

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Ogbuabor, J.E., Orji, A., Edeme, R.K., & Ukwueze, E.R. (2019). Structural Change, Exchange Rate and the Asymmetric Adjustment of Retail Energy Prices in Europe. Prague Economic Papers, 28(2), 196-234. doi: 10.18267/j.pep.693
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