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Why do gas and heating oil prices shoot up fast but fall down slowly when the economy gets shaky? This book provides the first large-scale empirical evidence on how economic policy uncertainty drives retail energy prices worldwide. Using Nonlinear Autoregressive Distributed Lag models and data from 2004M11 to 2020M6, the study examines gasoline, diesel, heating oil, industrial fuel oil, and crude oil markets across major economies.
The findings are clear: rising uncertainty significantly increases retail energy prices in both the short and long run, with the strongest effects in the UK, Japan, and Europe. Markets react much more to rising uncertainty than to falling uncertainty, evidence of a widespread “fear of the unknown.” The study also confirms the classic “rockets and feathers” effect in almost all countries except Canada, where prices rise like rockets and fall like feathers. More concerning, it finds evidence of rent-seeking behavior by retailers in diesel and domestic heating oil markets in Italy, the UK, and France during periods of uncertainty, including the Covid-19 pandemic.
The book concludes with direct policy implications for consumer welfare, antitrust enforcement, and the need for a stable policy environment. For energy regulators, economists, antitrust agencies, and market analysts, this book offers data, models, and actionable insights to protect consumers and improve market efficiency during times of uncertainty.
