Munich Personal RePEc Archive

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

Xuan, Poh Paik and Chin, Lee (2015): Pass-through Effect of Oil Price into Consumer Price: An Empirical Study. Published in: International Journal of Economics and Management , Vol. 9, No. S (2015): pp. 143-161.

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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.

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