Price, income and exchange rate asymmetric elasticities of oil consumption in Greece, Ireland, Italy, Portugal and Spain

Abstract

The dynamic relationship between oil price variations, changing income, exchange rate deviations and oil consumption has preoccupied the minds of many energy researchers albeit contradicting submissions. On this note, this study seeks to evaluate the possible asymmetric impact of the aforementioned variables on oil consumption in selected European countries, including Greece, Ireland, Italy, Portugal and Spain between 2000Q1 and 2018Q4. To that effect, after ascertaining the existence of cointegration, the study applied the nonlinear ARDL technique in evaluating the asymmetric effects of oil price, income and exchange rate on oil consumption in these countries. The cointegration tests reveals a long-run relationship among the variables in all the countries. Also discovered is an asymmetric pass-through from oil prices to oil consumption in Portugal, Ireland and Spain. Whereas in Ireland, Italy and Spain, an asymmetric relationship exists between oil consumption and national income, while asymmetric effects flow from the exchange rate to oil consumption in Ireland and Spain. Therefore, to ensure optimal resource allocations in these countries, the existence of asymmetric effects must not be taken for granted. Meanwhile, a onesize-fits-all strategy may not yield the expected results in these countries.