Pass-through Effect of Oil Price into Consumer Price: An Empirical Study

Poh Paik Xuan and Chin Lee ()

MPRA Paper from University Library of Munich, Germany

Abstract: The fuel price in Malaysia is subsidizes by the government with the aim to improve the standard living of the poor by making fuels affordable and obtainable. However, the government has begun phasing out the subsidy by stages due to the adverse effect on the country’s development in the long run. Nevertheless, the most demanded type of fuel in Malaysia is diesel and it is still subsidized by the government. Hence, the primary objective of this paper is to study the pass-through effect of actual diesel price and subsidized retail diesel price into Malaysia’s consumer price. Essentially, this paper highlights on whether there will be difference in the transmission effect of diesel price into consumer price at both aggregated as well as the disaggregated level. The well-established Autoregressive Distributed Lags (ARDL) method is adopted by incorporating the quarterly data spanning from 2005 until 2013. The results indicated that the transmission effect of actual diesel price is more prominent whereby no subsidy is given comparatively to the retail diesel price whereby the price is subsidizes by the government.

Keywords: ARDL; Augmented Philips Curve; Diesel Price; Disaggregated Consumer Price Index (search for similar items in EconPapers)
JEL-codes: E31 F69 (search for similar items in EconPapers)
Date: 2015
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Published in International Journal of Economics and Management S.9(2015): pp. 143-161

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