Relationships among gasoline prices of eight brands at the north of Mexico City

Abstract

This document uses a vector error correction model to obtain the decomposition into permanent and transitory components of gasoline prices offered by eight brands in the north of Mexico City, through an impulse response analysis and variance decomposition, from July 1, 2018, to june 17, 2020. The main findings are that are multiple influences and interdependencies among the eight brands’ prices analyzed. In the short term, three patterns in pricing are identified: (a) prices initially explained by themselves but rapidly influenced by the rest of prices, (b) prices explained throughout the cycle mainly by their disturbances, and (c) prices that depend strongly on the rest of prices. In the long term, these patterns consequently determine that there are three cointegration vectors between all prices. The results found in the analyzed period suggest that it is perhaps still early to expect that there will be an equilibrium price vector derived from a competitive market in Mexico.