Do gasoline and diesel prices co-move? Evidence from the time–frequency domain

This study investigates the co-movements of gasoline and diesel prices in three European countries (i.e. Germany, France, and Italy) with different fuel tax systems in place. The methodology follows a time–frequency approach, allowing us to analyse the co-movements at different frequencies and moments in time. As a novelty, we study the impact of fuel tax systems and international oil price dynamics on gasoline and diesel price co-movement. Using weekly data spanning the period from January 2005 to June 2021, the wavelet coherence analysis shows co-movements between gasoline and diesel at all frequencies, as well as during specific periods, but stronger in the long run. This evidence is recorded across all three countries, regardless of their tax systems. However, in decoupling the effect of international oil prices, the partial wavelet coherence analysis shows co-movements emerging also in the short run, with them being stronger around the global financial crisis (2008–2009). Although gasoline taxes are generally higher than diesel taxes, the analysis highlights that fuel tax systems do not influence the co-movements of fuel prices. Thus, shedding new light on the co-movement between commodity prices is fundamental, particularly in light of the current international geopolitical scene.