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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.
