Abstract
By using a recently developed nonlinear cointegration methodology, and a sample that encompasses more than thirty years of monthly data, we investigate whether the transmission of crude oil price variations to gasoline prices in the US market is asymmetric, i.e.,depends on the sign of the change in the explanatory variable, considering both the long- and the short-run. The model is further extended by taking separately into account the effects of extreme and mild changes in crude oil prices. This allows us to verify whether and to what extent the size and shape of any observed asymmetry in pricing is affected by the presence of outliers. Moreover, given the substantial length of the sample considered, we test for the possible presence of multiple structural breaks of unknown timing in the cointegrating vector. Our results indicate that the relationship between the prices of gasoline and crude oil has undergone a single structural break in the late 2008, and that after the break extreme observations have a non-negligible role in shaping asymmetry.
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