Price transmission between oil and gasoline and diesel: A new measure for evaluating time asymmetries

Abstract

One of the most widely debated issues concerning asymmetric price transmission between oil and fuel prices is what is known as the “rockets and feathers” phenomenon. Although theoretical debate on the short-term connection between oil prices and petroleum product prices takes into account the speed and the magnitude of response, a literature review shows that empirical applications have centred their attention on the latter. This article contributes to the discussion introducing a new measure to quantify mean lag responses to positive and negative oil price shocks from asymmetric dynamic multipliers from a non-linear autoregressive distributed lag (NARDL) model that analyses weekly data from 2009 to 2020 for 12 OECD countries. The results show that both asymmetries, in terms of speed and magnitude, exist for many of the analysed markets, demonstrating the importance of not only accounting for the impact but also for the mean lag of the response.