Rockets and Feathers in the Oil and Gasoline Markets: In-Depth Analysis of Three Asymmetries

This study examines asymmetric pass-through from oil to gasoline prices in the United States using weekly data from January 2000 to May 2023. Employing a smooth transition vector error correction model with generalized impulse response functions, we test three sources of asymmetry: the existence of an inaction band—a range of oil price changes too small to trigger any gasoline price adjustment, differences in error-correction speeds, and nonlinear responses to shocks of varying sign and size. The results reveal a clear inaction band with asymmetric thresholds: gasoline prices adjust quickly to small oil price increases but require much larger decreases before price cuts occur. Adjustment speed asymmetry across regimes is not statistically significant. Instead, asymmetry arises primarily through nonlinear impulse responses, where large positive shocks are passed through more rapidly and completely than negative shocks. These effects intensify during crisis episodes such as the COVID-19 pandemic and the early phase of the Russia–Ukraine conflict.