scholarly journals To Pass (or Not to Pass) Through International Fuel Price Changes to Domestic Fuel Prices in Developing Countries

2020 ◽  
Vol 20 (194) ◽  
Author(s):  
Kangni Kpodar ◽  
Patrick Imam
Keyword(s):  
Developing Countries ◽  
Short Term ◽  
Fuel Price ◽  
Price Changes ◽  
Fuel Prices ◽  
International Prices ◽  
Domestic Prices ◽  
Pass Through ◽  
Political Variables ◽  
Domestic Fuel

While many developing countries limit the international fuel price pass through to domestic fuel prices, others do not. Against this backdrop, we examine the factors that determine whether governments allow international fuel price changes to be passed through to domestic prices in developing countries using a dataset spanning 109 developing countries from 2000 to 2014. The paper finds that the pass-through is higher when changes in international prices are moderate and less volatile. In addition, the flexibility of the pricing mechanism allows for higher pass-through while exchange rate depreciation and lower retail fuel prices in neighboring countries inhibit it. The econometric results also underscore the fact that countries with inflation tend to experience lower pass-through, whereas those with high public debt exhibit larger pass-through. Finally, no evidence is found that political variables or environmental policies matter with regard to fuel price dynamics in the short-term. These findings, which are consistent across fuel products (gasoline, diesel and kerosene), allow us to draw important policy lessons for fuel subsidy reforms.

scholarly journals Direct vs. Indirect Impact of Fuel Price on Wages in South Africa

2020 ◽  
Vol 24 ◽  
Author(s):  
Temitope Lydia Leshoro ◽  
Glenda Maluleke
Keyword(s):  
South Africa ◽  
Direct Effect ◽  
Inflation Rate ◽  
Impulse Response Function ◽  
Oil Prices ◽  
Fuel Price ◽  
Vector Autoregressive ◽  
Fuel Prices ◽  
Domestic Prices ◽  
Pass Through

The international oil price has been increasing significantly, but consumers react more to the announcement of the increase in fuel (pump) price, than an increase in international oil prices. This study, therefore, investigates the direct effect of fuel prices on the inflation rate and wages in South Africa, on the one hand, and the domestic price pass-through from fuel prices to wages (indirect effect) on the other. The impulse-response function of the vector autoregressive (VAR) technique was used to examine the direct and indirect effects of fuel prices on the inflation rate and wages, as well as the domestic prices pass-through from fuel prices to wages in South Africa. Quarterly data from 2001Q1 to 2018Q2 were utilised. The empirical results showed that inflation and wages responded positively to the shock in the fuel price. The results indicated that although wages increased because of a shock in the inflation rate—depicting the pass-through from the fuel price—the direct impact of the fuel price on wages is more significant. This study departs from the usual studies that examine the exchange rate pass-through of international oil prices to the inflation rate. The conclusion drawn was that the pass-through effect was not as strong and did not contribute as much as the direct effect of the fuel price. Therefore, the indirect shock of fuel prices, via inflation, does not so much cause an increase in wages as its direct shock. The study concludes with policy recommendations.

scholarly journals International Shocks, Variable Markups, and Domestic Prices

2019 ◽  
Vol 86 (6) ◽  
pp. 2356-2402 ◽  
Author(s):  
Mary Amiti ◽  
Oleg Itskhoki ◽  
Jozef Konings
Keyword(s):  
Small Firms ◽  
Manufacturing Sector ◽  
Price Setting ◽  
Price Changes ◽  
Strategic Complementarities ◽  
Variable Markups ◽  
Domestic Prices ◽  
Pass Through ◽  
International Shocks ◽  
Exchange Rate Pass Through

Abstract How strong are strategic complementarities in price setting across firms? In this article, we provide a direct empirical estimate of firms’ price responses to changes in competitor prices. We develop a general theoretical framework and an empirical identification strategy, taking advantage of a new micro-level dataset for the Belgian manufacturing sector. We find strong evidence of strategic complementarities, with a typical firm adjusting its price with an elasticity of 0.4 in response to its competitors’ price changes and with an elasticity of 0.6 in response to its own cost shocks. Furthermore, we find evidence of substantial heterogeneity in these elasticities across firms. Small firms exhibit no strategic complementarities in price setting and complete cost pass-through. In contrast, large firms exhibit strong strategic complementarities, responding to both competitor price changes and their own cost shocks with roughly equal elasticities of around 0.5. We show that this pattern of heterogeneity in markup variability across firms is important for explaining the aggregate markup response to international shocks and the observed low exchange rate pass-through into domestic prices.

scholarly journals Food and Fuel Prices-Recent Developments, Macroeconomic Impact, and Policy Responses—An Update

Policy Papers ◽  
2008 ◽  
Vol 2008 (58) ◽  
Author(s):  
Keyword(s):  
Oil Prices ◽  
Early Summer ◽  
Balance Of Payments ◽  
Fuel Price ◽  
Middle Income ◽  
Fuel Prices ◽  
Domestic Prices ◽  
Recent Developments ◽  
Macroeconomic Impact ◽  
The Impact

This report updates the macroeconomic assessment of the impact of global food and fuel price increases provided in the IMF June 2008 Board paper: Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Response. Food and oil prices peaked in early summer—in particular, oil prices surged to levels envisaged under the most adverse scenario presented in the June paper. Against this background, the effects of higher prices on the balance of payments, budgets, and domestic prices intensified and a large group of low- and middle-income countries is experiencing a substantial weakening of their balance of payments and higher inflation. These findings reinforce the importance of adopting appropriate policies to maintain macroeconomic stability while protecting the poor.

scholarly journals Domestic Fuel Price and Economic Sectors in Malaysia

2011 ◽  
Vol 3 (1) ◽  
pp. 28-41
Author(s):  
Hui-Siang JEE Brenda ◽  
Chin-Hong PUAH . ◽  
Shazali ABU MANSOR .
Keyword(s):  
Renewable Energy ◽  
Energy Prices ◽  
Economic Sectors ◽  
Fuel Price ◽  
Fuel Prices ◽  
High Dependency ◽  
Increasing Demand ◽  
Global Growth ◽  
Domestic Fuel

This study empirically examines the relation between the domestic fuel prices with the ten disaggregated economic sectors in Malaysia with the spanning of data from 1990:Q1 to 2007:Q4. We found that only three sectors (agriculture, trade and other services sectors) are cointegrated with the fuel price and fuel price does Granger cause these sectors. Despite the evidence of non-cointegrated in most of the economic sectors, fuel price able to influence these sectors over a longer period. Policy recommendation from this study includes the utilization of the renewable energy (RE) as a strategic plan is the long-term solution due to the high dependency and increasing demand of energy. While energy prices have experienced some correction in response to signs of slower global growth, sufficient government enforcement and support need to be established to facilitate successful renewable energy implementation in Malaysia.

Mexico fuel price spike will have severe impact

2017 ◽  
Keyword(s):  
Sharp Increase ◽  
Short Term ◽  
Fuel Price ◽  
Content Type ◽  
Fuel Prices ◽  
National Action Party

Subject Fuel price liberalisation. Significance The liberalisation of Mexican fuel prices this month has seen a sharp increase in pump prices. In a televised address on January 5, President Enrique Pena Nieto said that his government would not reverse the price jump, despite protests throughout the country that have often become violent. Impacts Competition between distributors will take time to develop, precluding any short-term price reductions. The National Action Party (PAN) or the National Regeneration Movement (MORENA) may take the presidency in 2018. Uncertainty on whether prices may be artificially lowered by the next government may deter long-term investments in the fuel market.

scholarly journals Effect of oil price pass-through on domestic price inflation: Evidence from nonlinear ARDL models

2019 ◽  
Vol 66 (1) ◽  
pp. 69-91 ◽  
Author(s):  
Kun Sek
Keyword(s):  
Consumer Price Index ◽  
Oil Price ◽  
Asymmetric Effect ◽  
Price Inflation ◽  
Price Changes ◽  
Producer Price ◽  
Nonlinear Ardl ◽  
Consumer Prices ◽  
Domestic Prices ◽  
Pass Through

We intended to demonstrate that oil price can have a different passthrough effect into domestic prices at consumer and production levels subject to an oil dependency factor. The results were compared between oil-importing and oil-exporting countries. The nonlinear autoregressive distributed lags (NARDL) models were used to capture the asymmetric pass-through effects of oil price increases and decreases in consumer price and producer price respectively. Our results revealed that oil price changes can have asymmetric effect on consumer price index (CPI) inflation directly and indirectly with more influential impact of indirect effect. This result holds for both groups of countries. The effect on producer price is much larger especially in oil-importing group due to the high dependence of these countries on oil. Oil price changes did lead to increases in consumer prices in oil-importing countries. This may due to effective monetary policy that enhances price stickiness in the economy.

The influence of inflation targeting on the pass-through effect of the exchange rate

2018 ◽  
pp. 70-84
Author(s):  
Ph. S. Kartaev ◽  
Yu. I. Yakimova
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Policy Regime ◽  
Short And Long Term ◽  
The Exchange Rate ◽  
Pass Through ◽  
The Impact

The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.

Perspectives on inflation Targeting Regime in Russia

2014 ◽  
pp. 107-121 ◽  
Author(s):  
S. Andryushin
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Short Term ◽  
Indirect Control ◽  
Financial Account ◽  
Domestic Prices ◽  
Macroeconomic Indicators ◽  
Private And Public

The paper analyzes monetary policy of the Bank of Russia from 2008 to 2014. It presents the dynamics of macroeconomic indicators testifying to inability of the Bank of Russia to transit to inflation targeting regime. It is shown that the presence of short-term interest rates in the top borders of the percentage corridor does not allow to consider the key rate as a basic tool of monetary policy. The article justifies that stability of domestic prices is impossible with-out exchange rate stability. It is proved that to decrease excessive volatility on national consumer and financial markets it is reasonable to apply a policy of managing financial account, actively using for this purpose direct and indirect control tools for the cross-border flows of the private and public capital.

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