Domestic Petroleum Price Smoothing in Developing and Transition Countries

28 Pages Posted: 15 Feb 2006

See all articles by Giulio Federico

Giulio Federico

Chief Economist Team, DG Competition, European Commission

James Daniel

International Monetary Fund (IMF)

Benedict Bingham

affiliation not provided to SSRN

Date Written: May 2001

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: Oil prices petroleum prices price stabilization hedging

JEL Classification: E64 O23 Q48

Suggested Citation

Federico, Giulio and Daniel, James and Bingham, Benedict, Domestic Petroleum Price Smoothing in Developing and Transition Countries (May 2001). Available at SSRN: https://ssrn.com/abstract=879586 or http://dx.doi.org/10.2139/ssrn.879586

Giulio Federico (Contact Author)

Chief Economist Team, DG Competition, European Commission ( email )

James Daniel

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Benedict Bingham

affiliation not provided to SSRN

No Address Available

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