ABSTRACT
This study applies fractional integration techniques (parametric and semi-parametric) to examine the time series behavior of US retail gasoline prices using weekly data from January 2, 1995, to May 22, 2017. The results based on both parametric and semi-parametric methods provide conflicting evidence. Using parametric methods, the orders of integration are significantly greater than 1; however, with the semi-parametric approach, there is some evidence of mean reversion (d < 1). These conflicting results could be due to the existence of structural breaks. Indeed, endogenous structural break tests indicate breaks in 2005 and 2010. The estimation of the orders of integration within each of the subsamples reveals the absence of mean reverting behavior in retail gasoline prices.
Funding
Prof. Luis A. Gil-Alana gratefully acknowledges financial support from the Ministerio de Economía y Competitividad (number ECO2014-55236).
Notes
1 The literature is quite extensive regarding the possible asymmetric relationship between gasoline and crude oil prices, see Bacon (Citation1991), Manning (Citation1991), Karrenbrock (Citation1991), Kirchgassner and Kubler (Citation1992), Shin (Citation1994), Duffy-Deno (Citation1996), Borenstein and Shepard (Citation1996), Borenstein et al. (Citation1997), Balke et al. (Citation1998), Reilly and Witt (Citation1998), Asplund et al. (Citation2000), Brown and Yucel (Citation2000), Godby et al. (Citation2000),Borenstein and Shepard (Citation2002), Eckert (Citation2002), Johnson (Citation2002), Salas (Citation2002), Bachmeier and Griffin (Citation2003), Bettendorf et al. (Citation2003), Galeotti et al. (Citation2003), Davis and Hamilton (Citation2004), Chen et al. (Citation2005), Radchenko (Citation2005a, Citation2005b), Kaufmann and Laskowski (Citation2005), Al-Gudhea et al. (Citation2007), Grasso and Manera (Citation2007), Honarvar (Citation2009), Meyler (Citation2009), Atil et al. (Citation2014), Kristoufek and Lunackova (Citation2015), and Polemis and Tsionas (Citation2016).
2 Literature on the time series dynamics of nonrenewable resource prices include Slade (Citation1982), Agbeyegbe (Citation1993), Berck and Roberts (Citation1996), Ahrens and Sharma (Citation1997), Pindyck (Citation1999), Postali and Picchetti (Citation2006), Lee and Lee (Citation2009), Ghoshray and Johnson (Citation2010), Barros et al. (Citation2014), Gil-Alana and Gupta (Citation2014), Presno et al. (Citation2014), Yaya et al. (Citation2015), Barros and Gil-Alana (Citation2016), and Zaklan et al. (Citation2016), among others.
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Funding
Prof. Luis A. Gil-Alana gratefully acknowledges financial support from the Ministerio de Economía y Competitividad (number ECO2014-55236).
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