Asymmetric impact of crude price on oil product pricing in the United States: An application of multiple threshold nonlinear autoregressive distributed lag model

Abstract

By using a multiple threshold nonlinear autoregressive distributed lag model, this paper assesses the nonlinear relationship among crude oil and petroleum product prices in the United States. While the assessment of the asymmetric impact on petroleum product prices based on the upward and downward movement of crude prices is well documented in the literature, the contribution of this paper is in splitting the crude price fluctuation in multiple partial sum series, which allows for a more detailed and minute analysis of the relationship. Apart from confirmation of nonlinear influences, we also found the presence of a relatively high asymmetric impact at the lower quantiles of crude oil price changes. This implies that the benefits of sharp reductions of crude prices are, in general, not transferred to various petroleum products.