How Do Gasoline Prices Respond to a Cost Shock?

In a broad class of sticky-price models, theory predicts that the kurtosis-to-frequency ratio of price changes is a sufficient statistic for the cumulative impulse response of prices (CIRP) to a nominal shock. Using several million daily gasoline prices in France, we provide supporting evidence of this prediction. The CIRP correlates with the kurtosis-to-frequency ratio, but also with both frequency and kurtosis taken separately. The sign and the magnitude of the correlations are fully in line with theoretical predictions. Other moments of the price change distribution do not correlate with the CIRP.

[1]  F. Álvarez,et al.  Empirical Investigation of a Sufficient Statistic for Monetary Shocks , 2021, SSRN Electronic Journal.

[2]  L. Henkel.  Sectoral Output Effects of Monetary Policy: Do Sticky Prices Matter? , 2020, SSRN Electronic Journal.

[3]  J. Konings,et al.  International Shocks, Variable Markups, and Domestic Prices , 2019, The Review of Economic Studies.

[4]  J. Blanco,et al.  Aggregate Dynamics in Lumpy Economies , 2019, Econometrica.

[5]  M. Polemis,et al.  Estimating Retail Gasoline Price Dynamics: The Effects of Sample Characteristics and Research Design , 2018, Energy Economics.

[6]  Martín González-Rozada,et al.  From Hyperinflation to Stable Prices: Argentina’s Evidence on Menu Cost Models* , 2018, The Quarterly Journal of Economics.

[7]  Raphael A. Auer,et al.  Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation , 2018, American Economic Review.

[8]  Diego R. Känzig,et al.  The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements , 2018, American Economic Review.

[9]  James D. Hamilton,et al.  Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks , 2017, American Economic Review.

[10]  H. L. Bihan,et al.  The real effects of monetary shocks in sticky price models. A sufficient statistic approach , 2016 .

[11]  P. Karadi,et al.  Menu Costs, Aggregate Fluctuations, and Large Shocks , 2014, American Economic Journal: Macroeconomics.

[12]  Andrew Eckert,et al.  Empirical Studies of Gasoline Retailing: A Guide to the Literature , 2013 .

[13]  Michael Weber,et al.  Are Sticky Prices Costly? Evidence from the Stock Market , 2013 .

[14]  E. Gautier,et al.  The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data , 2012 .

[15]  Virgiliu Midrigan.  Menu Costs, Multi-Product Firms and Aggregate Fluctuations , 2011 .

[16]  E. Jondeau,et al.  Sectoral Phillips curves and the aggregate Phillips curve , 2011 .

[17]  Nir Jaimovich,et al.  Reference Prices, Costs, and Nominal Rigidities , 2011 .

[18]  Ana María Herrera,et al.  Why are Gasoline Prices Sticky? A Test of Alternative Models of Price Adjustment , 2010 .

[19]  Mikael Carlsson,et al.  Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost , 2009, SSRN Electronic Journal.

[20]  D. Zerom,et al.  Accounting for Incomplete Pass-Through , 2009 .

[21]  M. Janssen,et al.  On the Effects of Suggested Prices in Gasoline Markets , 2008, The Scandinavian Journal of Economics.

[22]  M. Woodford.  Information-Constrained State-Dependent Pricing , 2008 .

[23]  Anton A. Nakov,et al.  Price Adjustments in a General Model of State-Dependent Pricing , 2008 .

[24]  Emi Nakamura,et al.  Monetary Non-Neutrality in a Multi-Sector Menu Cost Model , 2008 .

[25]  Christopher T. Taylor,et al.  Retail Gasoline Pricing: What Do We Know? , 2008 .

[26]  Ricardo J. Caballero,et al.  Price Stickiness in SS Models: New Interpretations of Old Results , 2007 .

[27]  Ò. Jordà,et al.  Estimation and Inference of Impulse Responses by Local Projections , 2005 .

[28]  Mikhail Golosov,et al.  Menu Costs and Phillips Curves , 2003, Journal of Political Economy.

[29]  James D. Hamilton,et al.  Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices , 2003 .

[30]  Richard Friberg,et al.  Price Adjustments by a Gasoline Retail Chain , 2000 .

[31]  Ricardo J. Caballero,et al.  Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,S) Approach , 1994 .

[32]  G. Calvo.  Staggered prices in a utility-maximizing framework , 1983 .

[33]  OUP accepted manuscript , 2021, The Quarterly Journal of Economics.

[34]  Gabriel Züllig,et al.  The extensive and intensive margin of price adjustment to cost shocks: Evidence from Danish multiproduct firms , 2020 .

[35]  International,et al.  Individual Price Adjustment Along the Extensive Margin , 2012 .

[36]  Simon M. Potter,et al.  Estimation and Inference of Impulse Responses by Local Projections , 2004 .

[37]  R. Gordon,et al.  Staggered Wage Setting in a Macro Model , 2022 .