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The asymmetric response of gasoline prices to oil price shocks and policy uncertainty

Wensheng Kang, Fernando Perez de Gracia and Ronald Ratti

Energy Economics, 2019, vol. 77, issue C, 66-79

Abstract: This study shows that the effect of oil price shocks on the real price of gasoline is interrelated with economic policy uncertainty. Economic policy shocks are linked with increased real price of gasoline and reduced consumption of gasoline. There is evidence that the fluctuation of both real gasoline prices and of gasoline consumption is associated with uncertainty of tax legislation expiration expectation as well as other components of economic policy uncertainty. Positive shocks to economic policy uncertainty have relatively larger effects on gasoline prices than do negative shocks to economic policy uncertainty. Economic policy uncertainty responds asymmetrically to increases and decreases in real oil price. Shocks to economic policy uncertainty account for 16.1% of variation in real gasoline prices and for 4.9% of variation in gasoline consumption in the long-run.

Keywords: Gasoline prices; Oil prices; Policy uncertainty; Asymmetric response; Structural VAR (search for similar items in EconPapers)
JEL-codes: E44 G12 Q43 (search for similar items in EconPapers)
Date: 2019
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