Estimating fuel price volatility and spillover effects across different European countries

Abstract

This paper analyses the volatility of retail fuel prices in nine different EU countries and the spillover effects between fuel prices across selected countries from Central and Eastern Europe and the Eurozone over the 2008-2019 period. In particular, we use the GARCH-GJR model in order to investigate fuel price volatility and identify potential asymmetric dynamics. Moreover, in order to assess the links between fuel prices across countries, we estimate a VAR model and compute spillover measures using the Generalised Forecast Error Variance Decomposition (GFEVD) approach formulated by Diebold and Yilmaz (2009). Our results provide evidence of weak links between retail fuel prices across EU countries, with slightly higher spillovers originating from some developed economies such as France and Italy.