Optimal Pass-Through of Oil Prices in an Economy with Nominal Rigidities

Hafedh Bouakez, Nooman Rebei and Désiré Vencatachellum ()

Cahiers de recherche from CIRPEE

Abstract: In many developing and emerging market economies, governments intervene to limit the degree to which oil-price increases are passed through to domestic fuel prices. This paper investigates whether, and to what extent, this intervention is warranted in an oil-importing economy characterized by nominal rigidities in the goods and labor markets. Our results indicate that, to the extent that monetary policy is capable of stabilizing the economy, government intervention in the oil market must be avoided. On the other hand, when complete stabilization is not attainable as a result of sub-optimal monetary policy, the government can improve social welfare by limiting the degree of pass-through of oil prices. We find, however, that the welfare gain from pursuing such a policy is negligible.

Keywords: Oil prices; pass-through; government; monetary policy; small open economy; welfare (search for similar items in EconPapers)
JEL-codes: E3 E5 F3 F4 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.cirpee.org/fileadmin/documents/Cahiers_2008/CIRPEE08-31.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0831

Access Statistics for this paper

More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().