Test for asymmetry on the ex-pump price of premium gasoline in Ghana, Kenya, and Colombia

Abstract

Once again, the World has been faced with an oil price shock as a result of the SARS-CoV-2 coronavirus pandemic. This has resurrected an old debate of whether retail fuel prices adjust significantly to either increases or decreases in international crude oil prices. With many countries moving towards the deregulation of their petroleum sub-sector, the impact of the US dollar exchange rate on retail fuel prices cannot be overlooked. This study investigates the rate at which positive and negative changes in international Brent crude oil prices and the US dollar exchange rate affected the increases or decreases in the ex-pump price of premium gasoline between February 2012 and December 2019. Using a non-linear auto-regressive distributed lag model, the exchange rate was found to play a significant role in fluctuations in the retail price of premium gasoline in Ghana and Colombia in the long run, howev-er, the rate of adjustment between the negative and positive changes was not significant, dispelling the perception of price asymmetry. There was no significant relationship between the ex-pump price of premium gasoline and the international Brent crude oil price in Ghana and Kenya in the long run. This study recommends that the aforementioned countries prioritise the creation of ex-change rate buffers to prevent exchange rate shocks that may affect retail fuel prices.