OIL PRICE FLUCTUATIONS AND ENERGY COMMODITY PRICES: AN ANALYSIS OF ASYMMETRIC EFFECTS

Previous studies mostly ignore possible nonlinear behaviors that may be caused by asymmetry, persistence, or structural breaks. This study aims to fill this gap by applying the Nonlinear Autoregressive Distributed Lag technique of Shin et al. [(2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications, pp. 281-314. New York: Springer] to examine the dynamic effect of oil prices on other energy prices based on nonlinear empirical frameworks. We identify how oil prices and four other energy commodity prices behave using daily data from January 07, 1991 to February 25, 2020. The long-run relationships suggest both oil price increases and decreases are significantly and positively related to the prices of all other energy commodities. There seems to be asymmetry in the linkages between oil prices and all the prices of diesel fuel, gasoline, heating oil and natural gas in the long run. Except for natural gas, the effects of oil price increases are significantly larger than those of oil price decreases. However, in the short run, the results are somewhat different. An asymmetric impact of oil price changes is found for gasoline and the effects of oil price decreases are larger than those of oil price increases. In our model, the real effective exchange rate of the US dollar is explicitly incorporated to capture the linkages between US dollar fluctuations and energy price movements. We find that the relative weakness of the US dollar strengthens the prices of energy commodities in the global market.