Domestic Petroleum Price Smoothing in Developing and Transition Countries
May 1, 2001
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Summary
This paper examines the case for government-led smoothing of domestic petroleum prices in the face of volatile international prices. Governments in most developing and transition countries engage in petroleum price smoothing, as the survey of country practice carried out for this paper shows. This paper reviews the potential welfare implications of petroleum price volatility, and assesses different price smoothing rules on the basis of historical oil prices. These simulations reveal the presence of a sharp trade-off between price smoothing and fiscal stability, suggesting that developing and transition country governments should engage in limited price smoothing and, if possible, rely on hedging instruments to do so.
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
Pages:
28
Volume:
2001
DOI:
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Issue:
075
Series:
Working Paper No. 2001/075
Stock No:
WPIEA0752001
ISBN:
9781451849738
ISSN:
1018-5941
