Domestic Petroleum Price Smoothing in Developing and Transition Countries
IMF Working Papers, May 1, 2001
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- Domestic Petroleum Price Smoothing in Developing and Transition Countries
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Bibliographic details
- Authors: Benedict F. W. Bingham, James Daniel, Giulio Federico
- Published: May 1, 2001
- Series: IMF Working Papers
Research Question and Scope
- Examines the case for government-led smoothing of domestic petroleum prices in the face of volatile international prices.
- Surveys country practice in developing and transition countries to document prevalence of petroleum price smoothing.
- Reviews potential welfare implications of petroleum price volatility.
- Assesses different price smoothing rules using simulations based on historical oil prices.
Key Findings
- Governments in most developing and transition countries engage in petroleum price smoothing, as shown by the paper’s survey of country practice.
- Simulations based on historical oil prices reveal a sharp trade-off between price smoothing and fiscal stability.
- The welfare implications of petroleum price volatility are significant enough to motivate policy intervention but interact with fiscal constraints.
Policy Recommendations and Implications
- Developing and transition country governments should engage in limited price smoothing rather than full insulation from international price volatility.
- Where possible, governments should rely on hedging instruments to manage oil price risk and reduce the fiscal cost of smoothing.
Subject Areas and Keywords
- Subject: Commodities, Consumption, National accounts, Oil, Oil prices, Price adjustments, Price stabilization, Prices
- Keywords: adjustment cost, Africa, consumer, Consumption, Europe, hedging, Middle East, Oil, oil price risk, Oil prices, pass-through, pass-through rule, petroleum prices, price, Price adjustments, price change, price shock, price stabilization, price volatility, retail price, risk trade-off, spot price, Western Hemisphere, WP
IMF Working Paper. This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.
Content in this bundle
- Domestic Petroleum Price Smoothing in Developing and Transition Countries - WP/01/75