does diversification destroy value evidence from the industry shocks does corporate diversification reduce shareholder value since firms endogenously choose to diversify exogenous variation in diversification is necessary to draw inferences about the causal effect we examine changes in the within firm dispersion of industry investment or diversity we find that exogenous changes in diversity due to changes in industry investment are negatively related to firm value thus diversification destroys value consistent with the inefficient internal capital markets hypothesis measurement error does not cause this finding we also find that exogenous changes in industry cash flow diversity are negatively related to firm value r 2002 elsevier science s a all rights reserved jel classification g34

asymmetric price adjustment and economic fluctuations this paper considers a possible explanation for asymmetric adjustment of nominal prices the authors present a menu cost model in which positive trend inflation causes firms relative prices to decline automatically between price adjustments in this environment shocks that raise firms desired prices trigger larger price responses than shocks that lower desired prices the authors use this model of asymmetric adjustment to address three issues in macroeconomics the effects of aggregate demand the effects of sectoral shocks and the optimal rate of inflation copyright 1994 by royal economic society

internal capital markets and the competition for corporate resources this article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market unlike a bank headquarters has control rights that enable it to engage in winner picking the practice of actively shifting funds from one project to another by doing a good job in the winner picking dimension headquarters can create value even when it cannot help at all to relax overall firm wide credit constraints the model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects this article analyzes the process by which internal capital markets channel limited resources to different uses inside a company in so doing it seeks to address two related sets of questions first what is the fundamental economic rationale for creating an internal capital market that is under what circumstances can it make sense to combine several technologically distinct projects under one roof and have them seek funding from corporate headquarters as opposed to setting them up as stand alone companies that each raise external financing on their own second given this rationale what is the optimal size and scope of an internal capital market should headquarters be involved in funding a large number of projects or just a few and should these projects be unrelated to one another or in similar lines of business the answers to both sets of questions flow from the insight that in a credit constrained setting where not all positive npv projects can be financed headquarters can create value by actively reallocating scarce funds across projects for example the cash flow generated by one division s activities may be taken and spent on investment in another division where the returns are higher or alternatively one division s assets may be used as collateral to raise financing that is then diverted to the other division simply put individual projects must compete for the scarce funds and headquarters job is to pick the winners and losers in this competition

does oil move equity prices a global view many studies indicate that oil price shocks have an adverse effect on real output and hence an adverse effect on corporate profits where oil is used as a key input the present study examines whether and to what extent the adverse effect of oil price shocks impacts stock market returns to this end we analyse 35 datastream global industry indices for the period from april 1983 to september 2005 our findings indicate that oil price rises have a negative impact on equity returns for all sectors except mining and oil and gas industries generally these results are consistent with economic theory and evidence provided by previous empirical studies little evidence of any asymmetry is detected in the oil price sensitivities in light of our findings we recommend that international portfolio investors consider hedging oil price risk

testing for asymmetric pricing in the canadian retail gasoline market abstract this paper applies a threshold regression model to test for asymmetric pricing in the retail gasoline market in canada using weekly data for the period january 1990 to december 1996 we present results for 13 canadian cities for both premium and regular gasoline within the context of an error correction model we test for the presence of asymmetric price behaviour using average changes in crude prices as well as various lags for the change in crude as possible thresholds we are unable to find any evidence to support this view

firm value and hedging evidence from u s oil and gas producers this paper studies the hedging activities of 119 u s oil and gas producers from 1998 to 2001 and evaluates their effect on firm value theories of hedging based on market imperfections imply that hedging should increase the firm s market value mv to test this hypothesis we collect detailed information on the extent of hedging and on the valuation of oil and gas reserves we verify that hedging reduces the firm s stock price sensitivity to oil and gas prices contrary to previous studies however we find that hedging does not seem to affect mvs for this industry in a classic modigliani and miller m m world with perfect capital markets risk management should be irrelevant when there are no information asymmetries taxes or transaction costs hedging financial risk should not add value to the firm because shareholders can undo any risk management activities implemented by the firm at the same cost in practice imperfections in capital markets create a rationale for lowering the volatility of earnings through hedging conventional explanations relate to the cost of financial distress tax incentives and the underinvestment problem risk management may also add value if hedging positions in derivatives contracts carry a premium that is not commensurate with risk or if active trading activities create a profit most empirical studies on this topic focus on the relation between corporate hedging and firm characteristics and try to determine whether the behavior of firms that hedge is consistent with extant theories the empirical evidence does not support any single theory however in addition most of these empirical studies provide only indirect evidence that hedging increases firm value recently however allayannis and weston 2001 directly test the relation between firm value and the use of foreign currency derivatives using a sample of 720 large firms between 1990 and 1995 they find that the value of firms that hedge on average is higher by about 5 this hedging premium is statistically and economically significant with a median market value mv of about

allocative disturbances and specific capital in real business cycle theories chanted albeit in varying degree with business cycle theories that either posit unexplained nominal wage and price rigidities or rely on misperceptions about nominal variables as a key driving force one response to this disenchantment has been a concentration of research effort on real business cycle theories aside from dissatisfaction with competitor theories the very visible oil price shock episodes of the 1970 s lent plausibility to the view that exogenous real disturbances cause large fluctuations in aggregate economic activity this essay on real business cycle theory considers the role of allocative disturbances in aggregate economic fluctuations when human and physical capital are specialized by allocative disturbances i mean events that impinge on the economy by inducing a costly time consuming reallocation of specialized resources at least since the publication of ricardo s principles in 1817 economists have recognized some of the potentially important aggregate consequences of allocative disturbances ricardo writes

oil price shocks and transportation firm asset prices abstract the transportation sector is a major user of oil based energy even as oil prices continue to fluctuate greatly the impact of oil price changes on transportation firms has heretofore not been adequately examined this paper fills this gap documenting important new findings based on analysis of over two decades of daily data on large changes in oil prices oil price shocks first while transportation firm returns are influenced negatively by oil price increases risks are increased more by oil price declines second firm characteristics are important with the market to book ratio being the most important firm characteristic and roa firm size and the prior run up in prices are also important in influencing oil price related returns betas variances and trading volumes third in the s p transportation sub sector industry concentration is negatively related to returns oil price risk and trading volume and asymmetrically related to returns and market betas these new findings enhance our understanding of the asset price impact of oil price shocks and should be of much interest to scholars corporate executives money managers regulators and policy makers

incentives in principal agent relationships this article identifies some of the major issues that have been examined in the literature on incentives the article begins by discussing the frictions that lie at the heart of incentive problems next the principal s optimal response to these frictions is explored taking as given the characteristics of the agents with whom the principal interacts in a nonrepeated setting the design of individualized contracts contests and tournaments is analyzed then the principal s task of selecting the best agent is addressed and repeated agency relationships are considered

regional and copula estimation effects on eu and us energy equity portfolios the aim of this paper is to investigate the regional interdependence structure of energy equities in the us and in the eu based on weekly stock prices of 28 big energy firms in the two regions fro

on the dynamic effects of oil price shocks a study using industry level data abstract this paper analyzes the effects of oil price shocks on demand and supply in various industries the impulse responses of identified var models indicate that for industries that have a large cost share of oil such as petroleum refinery and industrial chemicals oil price shocks mainly reduce supply in contrast for many other industries with the automobile industry being a particularly important example oil price shocks mainly reduce demand the paper suggests that oil price shocks influence economic activities beyond that explained by direct input cost effects possibly by delaying purchasing decisions of durable goods

is it inefficient investment that causes the diversification discount diversified conglomerates are valued less than matched portfolios of pure play firms recent studies find that this diversification discount results from conglomerates inefficient allocation of capital expenditures across divisions much of this work uses tobin s q as a proxy for investment opportunities therefore hypothesizing that q is a good proxy this paper treats measurement error in q using a measurement error consistent estimator on the sorts regressions in the literature i find no evidence of inefficient allocation of investment the results in the literature appear to be artifacts of measurement error and of the correlation between investment opportunities and liquidity diversif ied conglomerates appear to trade at a discount relative to matched portfolios of pure play firms studies documenting this stylized fact include lang and stulz 1994 berger and ofek 1995 comment and jarrell 1995 and servaes 1996 recent empirical work has sought to find the source of this diversification discount building on the theoretical work in milgrom and roberts 1990 stein 1997 and scharfstein and stein 2000 on the inefficiency of internal capital markets this literature has asked specifically whether diversified firms allocate their capital expenditures inefficiently across divisions the canonical answer has been yes and has been supported by two types of evidence first studies such as lamont 1997 shin and stulz 1998 shin and park 1998 and rajan servaes and zingales 2000 all find that internal capital markets in conglomerates transfer funds across divisions in a suboptimal manner second studies such as berger and ofek and scharfstein 1998 provide evidence suggesting that the divisions of conglomerates do not respond adequately to investment opportunities in comparison to single segment firms however these findings about divisional investment may be an artifact of measurement error most of these studies rely on tobin s q the market value of the capital stock divided by its replacement value as a proxy for investment opportunities and tobin s q is likely to be a poor proxy shin and stulz

industry divestiture waves how a firm s position influences investor returns because of the opaque nature of divestitures investors face considerable uncertainty in evaluating divestiture decisions and thus may look to a firm s social context defined in terms of the per

global economic activity and crude oil prices a cointegration analysis abstract this paper empirically investigates the cointegrating relationship between crude oil prices and global economic activity the kilian economic index is used as an indicator of global economic activity based on a supply demand framework and the cointegration theory we find that real futures prices of crude oil are cointegrated with the kilian economic index and a trade weighted us dollar index and crude oil prices are influenced significantly by fluctuations in the kilian economic index through both long run equilibrium conditions and short run impacts we also develop an empirically stable data coherent and single equation error correction model ecm which has sensible economic properties empirical results based on the ecm show that the adjustment implied by a permanent change in the kilian economic index is a relatively drawn out process

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

mountain or molehill downward biases in the conglomerate discount measure abstract the berger and ofek 1995 excess value measure comparing a conglomerate s actual market value to an imputed value based on standalones has become the standard method to determine value effects of diversification in this paper we address a significant bias in this procedure stemming from the difference in cash holdings between diversified and standalone firms excess values are based on firm values including corporate cash positions as standalones hold significantly more cash the imputed cash value is higher than the conglomerate s actual cash value resulting in a downward biased excess value we thus propose to calculate excess values based on enterprise values replacing total debt by net debt based on an extensive us sample we show that there is significantly less evidence of a diversification discount when adjusting for the cash bias in terms of average dollar losses the firm value based models overestimate the conglomerate discount by at least 25 apart from removing the cash bias we propose a second modification to the excess value measure arguing that standalone industry multipliers should be calculated using geometric mean aggregation instead of median aggregation

information asymmetry valuation and the corporate spin off decision we empirically analyze the information hypothesis that the separation of a rm s divisions into independently traded units through a spin o enhances value because it mitigates information asymmetry about the rm consistent with this hypothesis we nd that rms that engage in spin o s have higher levels of information asymmetry compared to their industry and size matched counterparts and the information problems decrease signi cantly after the spin o the gains around spin o s are positively related to the degree of information asymmetry and this relation is more pronounced for rms with fewer negative synergies between divisions finally rms with higher growth opportunities and rms in need of external capital show a higher propensity to engage in spin o s they also raise more capital following a spin o which is consistent with the view that

the impact of conglomeration on the option value of equity abstract using contingent claims analysis i quantify the effect of risk reducing corporate diversification on the value of equity as a call option on firm assets the impact of conglomeration on firm risk is heavily conditioned on firm size in contrast to small firms the risk of large firms does not decline with increasing conglomeration accounting for this effect the expected equity discount is much lower than commonly assumed and can even turn into a premium if the path dependency of equity is incorporated my results stand in direct contrast to those of mansi and reeb 2002 and caution against using asset substitution as a qualitative argument for explaining economy wide value phenomena

the asymmetry of the impact of oil price shocks on economic activities an application of the multivariate threshold model this paper applies the multivariate threshold model to investigate the impacts of an oil price change and its volatility on economic activities changes in industrial production and real stock returns the statistical test on the existence of a threshold effect indicates that a threshold value does exist using monthly data of the us canada and japan during the period from 1970 to 2002 we conclude i the optimal threshold level seems to vary according to how an economy depends on imported oil and the attitude towards adopting energy saving technology ii an oil price change or its volatility has a limited impact on the economies if the change is below the threshold levels iii if the change is above threshold levels it appears that the change in oil price better explains macroeconomic variables than the volatility of the oil price and iv if the change is above threshold levels a change in oil price or its volatility explains the model better than the real interest rate

spin offs divestitures and conglomerate investment we examine whether spin offs or divestitures cause improvements in conglomerate investment efficiency at issue are endogeneity of these restructuring decisions and correct measurement of investment efficiency endogeneity is a problem because the factors that induce firms to spin off or divest divisions may also improve investment efficiency measurement error is a problem because efficiency measures employ tobin s q as a noisy proxy for investment opportunities we find important differences between firms that divest or spin off and a control sample after accounting for these differences and for measurement error in q we find no evidence of improvements in investment efficiency

monitoring motivation and management the determinants of opportunistic behavior in a field experiment economic models of incentives in employment relationships are based on a specific theory of motivation employees are rational cheaters who anticipate the consequences of their actions and shirk when the marginal benefits exceed costs we investigate the rational cheater model by observing how experimentally induced variation in monitoring of telephone call center employees influences opportunism a significant fraction of employees behave as the rational cheater model predicts a substantial proportion of employees however do not respond to manipulations in the monitoring rate this heterogeneity is related to variation in employee assessments of their general treatment by the employer jel d2 j2 l2 l8 m12

divisional diversity and the conglomerate discount evidence from spinoffs abstract existing literature argues that disparity in investment opportunities within diversified firms can erode firm value we investigate the diversity cost hypothesis of spinoffs by using post spinoff data to 1 reconstruct the diversified firm after the spinoff and assess the aggregate improvement in value and 2 relate any value improvements to changes in diversity we find that improvements in aggregate value depend significantly on changes in both a direct measure of diversity and measures based on industry proxies we conclude that diversification discounts at least partially reflect a value loss due to the diversified nature of the firm itself rather than selection bias or measurement error

asymmetric price adjustment cross industry evidence several studies document asymmetric price adjustment in gasoline and agricultural markets do these results extend to other subsectors of the economy this paper investigates the existence of asymmetric price adjustment in 269 6 digit north american industrial classification system naics industries using quarterly financial data from 1966 2006 results which are consistent with the previous literature show that positive price asymmetry is frequent in nondurable goods and natural resource manufacturing however price asymmetry is not readily evident in mining durable goods manufacturing and service sectors the differing results may best be explained by theoretical explanations of price asymmetry based on inventory management

the determinants of stock price exposure financial engineering and the gold mining industry this paper studies the exposure of north american gold mining firms to changes in the price of gold the average mining stock moves 2 percent for each 1 percent change in gold prices but exposures vary considerably over time and across firms as predicted by valuation models gold firm exposures are significantly negatively related to the firm s hedging and diversification activities and to gold prices and gold return volatility and are positively related to firm leverage simple discounted cash flow models produce useful exposure predictions but they systematically overestimate exposures possibly due to their failure to reflect managerial flexibility

reciprocity and wage undercutting it is well documented that employers refuse to hire workers who o er their services at less than the prevailing wage the received explanation is that workers are motivated by reciprocity they desire to reward kindness and punish hostility to refuse an outsider s underbid is viewed as a kind choice that is met with good e ort a low wage is viewed as an insult that is met with shirking we have developed a general theory of reciprocity which in this paper is applied to a wage setting game played by an employer and two workers we show that when workers are motivated by reciprocity equilibrium behaviour accords well with the aforementioned stylized facts 2000 elsevier science b v all rights reserved jel classixcation d63 e24 j41

transparency and reciprocal behavior in employment relations abstract the impact of transparency on the extent of reciprocal behavior is investigated in a simple repeated gift exchange experiment where principals set wages and agents respond by choosing effort levels that with a random component determine principals payoff it is shown that direct reciprocal behavior is much stronger in a more transparent situation where efforts are revealed to the principals however there is no significant impact of transparency on average effort as non transparency leads to a stronger diversity in behavioral patterns such that at the same time the frequency of very low and very large effort levels increases

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

simple and complex gift exchange in the laboratory we examine an experimental gift exchange game in which the players can improve upon the unique no gifts equilibrium through cooperative gift giving the main feature of the study is that there are two different types of gift exchange which we call simple and complex exchange respectively complex exchange gives higher payoffs than simple exchange but it requires not only mutual trust like simple exchange but also a substantial degree of coordination we examine whether players are able to conclude simple and complex exchanges and how this is affected by the move and matching structure of the game

econometric models of asymmetric price transmission abstract in this paper we review the existing empirical literature on price asymmetries in commodities providing a way to classify and compare different studies that are highly heterogeneous in terms of econometric models type of asymmetries and empirical findings relative to the previous literature this paper is novel in several respects first it presents a detailed and updated survey of the existing empirical contributions on price asymmetries in the transmission mechanism linking input prices to output prices second this paper presents an extension of the traditional distinction between long run and short run asymmetries to new categories of asymmetries such as contemporaneous impact distributed lag effect cumulated impact reaction time equilibrium and momentum equilibrium adjustment path regime effect regime equilibrium adjustment path each empirical study is then critically discussed in the light of this new classification of asymmetries third this paper evaluates the relative merits of the most popular econometric models for price asymmetries namely autoregressive distributed lags partial adjustments error correction models regime switching and vector autoregressive models finally we use the meta regression analysis to investigate whether the results of asymmetry tests are not model invariant and find which additional factors systematically influence the rejection of the null hypothesis of symmetric price adjustment the main results of our survey can be summarized as follows i each econometric model is specialized to capture a subset of asymmetries ii each asymmetry is better investigated by a subset of econometric models iii the general significance of the f test for asymmetric price transmission depends mainly on characteristics of the data dynamic specification of the econometric model and market characteristics overall our empirical findings confirm that asymmetry in all its forms is very likely to occur in a wide range of markets and econometric models

exogenous oil supply shocks how big are they and how much do they matter for the u s economy abstract the paper proposes a new measure of exogenous oil supply shocks the timing the magnitude and the sign of this measure may differ greatly from current state of the art estimates it is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous oil production disruptions exogenous oil supply shocks cause a sharp drop of u s real gdp growth after five quarters rather than an immediate and sustained reduction in economic growth and a spike in cpi inflation after three quarters overall exogenous oil supply shocks made remarkably little difference for the evolution of the u s economy since the 1970s although they did matter for some historical episodes

subjective performance evaluations and reciprocity in principal agent relations we conduct a laboratory experiment with agents working on and principals benefiting from a real effort task in which the agents performance can only be evaluated subjectively principals give subjective performance feedback to agents and agents have an opportunity to sanction principals in contrast to existing models of reciprocity we find that agents tend to sanction whenever the feedback of principals is below their subjective self evaluations even if agents pay offs are independent of it in turn principals provide more positive feedback relative to their actual performance assessment of the agent if this does not affect their pay off

do retail gasoline prices respond asymmetrically to cost shocks the influence of edgeworth cycles asymmetric price cycles similar to edgeworth cycles are appearing in increasingly many retail gasoline markets in the united states and worldwide the asymmetry in the cycles can give rise to a finding of asymmetric price responses to cost shocks asymmetric passthrough this article estimates asymmetric passthrough for the market of toronto which exhibits cycles and decomposes it into two components that part explainable by the cycles and that part driven by other unknown sources significant asymmetric passthrough is found with increases passed through more quickly than decreases a significant cause of the finding is the presence of the cycles themselves

jumps and stochastic volatility in oil prices time series evidence abstract in this paper we examine the empirical performance of affine jump diffusion models with stochastic volatility in a time series study of crude oil prices we compare four different models and estimate them using the markov chain monte carlo method the support for a stochastic volatility model including jumps in both prices and volatility is strong and the model clearly outperforms the others in terms of a superior fit to data our estimation method allows us to obtain a detailed study of oil prices during two periods of extreme market stress included in our sample the gulf war and the recent financial crisis we also address the economic significance of model choice in two option pricing applications the implied volatilities generated by the different estimated models are compared and we price a real option to develop an oil field our findings indicate that model choice can have a material effect on the option values

are internal capital markets efficient using segment information from compustat we find that the investment by a segment of a diversified firm depends on the cash flow of the firm s other segments but significantly less than it depends on its own cash flow the investment by segments of highly diversified firms is less sensitive to their cash flow than the investment of comparable single segment firms the sensitivity of a segment s investment to the cash flow of other segments does not depend on whether its investment opportunities are better than those of the firm s other segments

security price reactions around corporate spin off announcements abstract we examine security price reactions around the announcements of 123 voluntary spin offs by 116 firms between 1963 and 1981 involving a pro rata distribution of the common stock of a subsidiary to the stockholders of the parent firm the median spin off in the sample is 6 6 of the original equity value and is associated with an abnormal return of 7 0 from 50 days prior to the announcement through completion of the spin off no evidence is found to indicate the gains to stockholders represent wealth transfers from senior securityholders over the entire event period we find positive gains for firms engaging in spin offs to facilitate mergers or to separate diverse operating units but negative returns to firms responding to legal and or regulatory difficulties in the two day interval surrounding the first press announcement we find positive average excess returns for all groups

co movements and spillovers of oil and renewable firms under extreme conditions new evidence from negative wti prices during covid 19 we test for the existence of volatility spillovers and co movements among energy focused corporations during the outbreak of the covid 19 pandemic inclusive of the april 2020 events where west texas intermediate wti oil future prices became negative employing the spillover index approach of diebold and yilmaz 2012 as well as developing a dcc figarch conditional correlation framework and using estimated spillover indices built on a generalised vector autoregressive framework in which forecast error variance decompositions are invariant to the variable ordering we examine the sectoral transmission mechanisms of volatility shocks and contagion throughout the energy sector among several results we find positive and economically meaningful spillovers from falling oil prices to both renewable energy and coal markets however this result is only found for the narrow portion of our sample surrounding the negative wti event we interpret our results being directly attributed to a sharp drop in global oil gas and coal demand rather than because of a sudden increase in oil supply while investors observed the us fracking industry losing market share to coal they also viewed renewables as more reliable mechanism to generate long term stable and low cost supply

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

do gasoline prices respond asymmetrically to crude oil price changes the authors test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices among the possible sources of this asymmetry are production inventory adjustment lags and market power of some sellers by analyzing price transmission at different points in the distribution chain the authors attempt to shed light on these theories spot prices for generic gasoline show asymmetry in responding to crude oil price changes which may reflect inventory adjustment effects asymmetry also appears in the response of retail prices to wholesale price changes possibly indicating short run market power among retailers

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model