Asymmetric price transmission and impulse responses from U.S. crude oil to jet fuel and diesel markets

Wenbei Zhang, Martin Luckert and Feng Qiu

Energy, 2023, vol. 283, issue C

Abstract: Despite numerous studies on price interdependencies in petroleum markets, the exploration of price transmission from crude oil to jet fuel and diesel remains surprisingly limited. This knowledge gap is particularly remarkable given the increasing economic significance of these fuels and the emerging biojet and biodiesel industries. Filling this research gap, this study employs a nonlinear time series approach that considers unique features of these markets— ‘stickiness’ of firms' responses, asymmetric price adjustments, and the time-dependent responses to oil price shocks. This approach provides a much-needed understanding of long-term price relationships, short-term dynamic adjustments, and price response mechanisms to crude oil shocks in the context of jet fuel and diesel markets. Key results include: (1) both jet fuel and diesel have long-run equilibrium relationships with oil prices; (2) price adjustments of jet fuel and diesel are asymmetric, in opposite directions, due to distinct differences in industrial characteristics; (3) the responses of the two types of fuel prices to oil shocks show nonlinear dynamic paths, with different amplitudes and decay periods. The findings contribute to a better understanding of the current fuel industries, and provide insights into emerging biofuel markets, with implications for businesses and policymakers.

Keywords: Asymmetric price transmission; Threshold error correction; Generalized impulse response function (GIRF); Jet fuel; Diesel (search for similar items in EconPapers)
JEL-codes: C32 D40 Q41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:283:y:2023:i:c:s0360544223018194

DOI: 10.1016/j.energy.2023.128425

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