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Do airfares respond asymmetrically to fuel price changes? A multiple threshold nonlinear ARDL model

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  • Pal, Debdatta
  • Mitra, Subrata K.

Abstract

This paper elucidates, whether airfares respond asymmetrically to fuel price changes. Recent literature suggests conflicting evidence on whether airfares respond rapidly to the increase in fuel price than to the decrease. Using monthly U.S. data spreading over January 2000 to June 2019 and by employing a multiple threshold nonlinear autoregressive distributed lag model, this paper doesn't surface any evidence of asymmetric adjustments of airfares to the changes in the prices of crude oil and jet fuel. Although the statistical results do not suggest a mechanism that conclusively identifies different adjustment rates in airfares relative to the difference in the prices for fuel, this absence does not support the presumption that the response of airfares to the changes in fuel prices is always symmetric. The results are quite robust to the splitting of the regressors into deciles.

Suggested Citation

  • Pal, Debdatta & Mitra, Subrata K., 2022. "Do airfares respond asymmetrically to fuel price changes? A multiple threshold nonlinear ARDL model," Energy Economics, Elsevier, vol. 111(C).
    • Handle: RePEc:eee:eneeco:v:111:y:2022:i:c:s0140988322002729
    DOI: 10.1016/j.eneco.2022.106113
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    More about this item

    Keywords

    Airfares; Crude oil price; Asymmetry; Multiple threshold NARDL;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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