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The purpose of this paper is to analyze the dynamics of crude oil prices of OPEC and non-OPEC countries using threshold cointegration. To capture the long-run asymmetric price transmission mechanism, we develop an error correction model within a threshold cointegration and CGARCH errors framework. The empirical contribution of our paper specifies the cointegrating relation between OPEC price and non-OPEC prices and estimates how and to what extent the respective prices adjust to eliminate disequilibrium. The finding exhibits that the conditional volatility of variance has long-run memory feature and the shocks on the long-run component do not adjust quickly. The OPEC producers could not drive down (up) crude oil prices with equivalent speeds for all participants in the market. The slow adjustment of OPEC process of positive discrepancies to the long-run equilibrium indicates that OPEC does not prefer modest oil prices. While, the rapid adjustment of non-OPEC process signifies their preference of modest oil prices after oil price increases. These differences of speeds show evidence for competitive behaviors between OPEC and non-OPEC countries.

A threshold cointegration analysis of asymmetric adjustment of OPEC and non-OPEC monthly crude oil prices