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| 1 |
ID:
166938
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| Summary/Abstract |
China has undertaken measures to regulate the prices of petroleum products since 1998 in order to deal with the world oil price shocks on its macro-economy. However, the effects of price regulation are yet unknown, especially when the world oil price fluctuates in different regimes. The study first analyses the mechanisms of petroleum product price (PPP) regulation (in the case of gasoline) and the crude oil-gasoline price fluctuation transmission, followed by the identification of regimes and their time intervals using regime-switching vector autoregressive model, and then estimates the effects of gasoline price regulation in reducing macroeconomic volatility. It is found that the world crude oil fluctuates in different regimes (the mild-fluctuation regime and the violent-fluctuation regime), the PPP regulation can reduce oil price volatility and then macroeconomic volatility, but it is more effective in the mild-fluctuation regime. The findings present a deeper understanding of the stabilization effect of PPP regulation on the macroeconomy, provide an evidence for sustaining China's PPP regulation for the purpose of macroeconomic stability, and offer policymakers new information for petroleum product pricing reforms.
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| 2 |
ID:
185696
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| Summary/Abstract |
Petroleum product price regulations are usually adopted to alleviate the shocks of crude oil price volatility on macroeconomy by adjusting the petroleum product price. However, the regulation can contribute to social welfare by alleviating the price shock on the one hand, but it can reduce welfare due to its price distortions on the other hand. Thus, this study assessed the net social welfare effect using a Regime-Switching Dynamic Stochastic General Equilibrium Model, so as to inform policy-makers whether to abandon or continue the regulation. The crude oil price volatility were analysed using data from June 2000 to December 2019, and impulse responses analyses were conducted to investigate the effects of the regulation on different economic indicators. Finally, the net social welfare were assessed using a social welfare loss function. It is found that the regulation is effective in alleviating the price shocks to the macroeconomy, and consequently reducing social welfare loss in a short run. Thus, while the reform of China's petroleum product pricing mechanism should be market-oriented, the regulation is economically justified for short-term implementation to deal with crude oil price volatility. The study provides policy makers with important information on the reform of petroleum product price regulation.
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