Asymmetric responses of highway travel demand to changes in fuel price: An explanation via fuel price uncertainty

• We analyze the asymmetric effects of fuel price changes on highway travel demand via fuel price uncertainty.
• We find that the fuel price uncertainty leads drivers respond asymmetrically to the changes in fuel prices.
• The decrease in the fuel price has bigger effects on the highway traffic volume than the increase in the fuel price.
• When fuel prices increase, the fuel price uncertainty weakens the negative effect on the highway travel demand.

Previous research has examined asymmetric effects of fuel price uncertainty on energy demand. If we consider that energy demand is related to travel demand, the changes in fuel prices may have asymmetric effects on highway travel demand via fuel price uncertainty. In other words, when in general fuel price is steadily rising, the highway traffic volume decreases by a small percentage. On the other hand, the highway traffic volume increases by a large percentage when fuel prices are falling. We hypothesize that the uncertainty in fuel prices generates this kind of asymmetric effect on highway traffic volume in Korea. We use the Korean monthly fuel price and highway traffic volume data from 2001 to 2009, and define the intra-month (weekly) fuel price changes as monthly fuel price volatility which is a proxy for monthly fuel price uncertainty. We found that the direction of the change in fuel prices had asymmetric effects on highway travel demand and that the fuel price uncertainty led drivers to respond asymmetrically to the changes in fuel prices.