Oil, Uncertainty, and Gasoline Prices

In this paper we investigate the relationship between crude oil and gasoline prices and also examine the effect of oil price uncertainty on gasoline prices. The empirical model is based on a structural vector autoregression that is modifiÂ…ed to accommodate multivariate GARCH-in-Mean errors, as detailed in Elder (2004) and Elder and Serletis (2010). We use monthly data for the United States, over the period from January 1976 to September 2014. We fiÂ…nd that there is an asymmetric relationship between crude oil and gasoline prices, and that oil price uncertainty has a positive effect on gasoline price changes. Our results are robust to alternative model specifiÂ…cations and alternative measures of the price of oil.