Asymmetric Determinants of Oil Price Movements in Pakistan

Abstract

In this research, we are interested to investigate the presence of asymmetries in the long-run and short-run relationship between Pakistan oil prices and a set of major determinants of oil prices namely, Saudi oil production, world oil production, exchange rate, and spread. We use a nonlinear autoregressive distributed lag (NARDL) bounds testing approach that allows possible asymmetric effects in both the short and long run.  Results provide evidence of asymmetries in both short and long-run relationships among Pakistan oil prices and determinants under consideration. Considering the importance of asymmetric nonlinearity in this context, it is shown that the exchange rate bears more, a moderate of world oil production and Saudi oil production and up-to a lesser extent spread constitute an important determinant of Pakistan oil prices. Our findings have relevant implications for investors, speculators, and particularly for policymakers of Pakistan’s economy