Domestic Petroleum Price Smoothing in Developing and Transition Countries

Benedict Bingham, James Daniel and Giulio Federico

No 2001/075, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; price; retail price; spot price; pass-through; consumer; Oil prices; petroleum prices; price stabilization; hedging; pass-through rule; price change; adjustment cost; price shock; oil price risk; risk trade-off; price volatility; Price adjustments; Consumption; Oil; Middle East; Western Hemisphere; Europe; Africa (search for similar items in EconPapers)
Pages: 28
Date: 2001-05-01
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Citations: View citations in EconPapers (13)

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