Petrol and Crude Oil Prices: Asymmetric Price Transmission

In this paper quantitative methods were used to establish whether petrol prices really respond faster to crude oil price increases than to decreases, as it is sometimes stated by drivers in the UK. The model created in this paper is designed to look for asymmetric patterns in the process of reverting to the long run equilibrium after shocks to the upstream variables. It can be used to assess asymmetries in interest rates and prices and to detect the impact of the transaction costs (consistent versions of TAR and M-TAR models) in many markets. Last but not least, it may be able to detect the impact of foreign exchange rate bands.