Asymmetric oil product pricing in India: Evidence from a multiple threshold nonlinear ARDL model
Abstract This article examines the potential asymmetric transmission from crude to oil product prices in India. Instead of linking oil product pricing only with rise and fall of crude price, this article analyzes the effect of crude price fluctuations by decomposing the crude price changes in quantiles by holding multiple thresholds. Use of multiple threshold nonlinear autoregressive distributed lag (MTNARDL) model improves precision in estimating the asymmetric effect of the crude price changes on oil product prices over that of the single threshold NARDL model. It is observed that the asymmetric price transmission is high across all oil products, when higher and lower quantiles of crude price fluctuations are compared. This shows that the price of oil products increases when crude prices go up; however, the advantage of the sharp fall of crude prices is not fully transmitted to the oil products.