Investigating the Sustainability of Asian, European and American Regional Gas Markets in Response to Currency and Crude Oil Price Shocks

In this study, we model the long-term and dynamic relationships between spot oil and exchange rates  and gas prices by applying the Markov switching vector self-regression model in three regional gas markets in USA, Europe and Asia. Price behavior is analyzed using Bayesian estimation to take into account the transition from an existing relationship and the delayed and recurring effects of price changes. We then apply shocks in sample periods that contain critical historical events that lead to the breakdown of price structure and regime switches to study price formation in each regional market and the mechanism of transfer between price regimes. According to the findings, although exchange rate volatility and variance has increased in recent periods, the effect of exchange rate shocks on spot prices in regional gas and oil markets has decreased, and price responses are less sensitive to inflation, compared to the past.  Finally, we take into account the nature of pricing in each market to study the relative stability of each market with respect to exchange rate changes.      JEL Classification: E23, C22, C32, C53 Keywords: Spot price, Markov SwitchingVector Autoregressive, Regime Transition probabilities, Structural shocks