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Energy subsidy and oil price fluctuation, and price behavior in Malaysia:A time series analysis

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  • Husaini, Dzul Hadzwan
  • Puah, Chin-Hong
  • Lean, Hooi Hooi

Abstract

Balancing between favorable energy subsidy and the financial burden of government is crucial for policymakers. This article intends to advance this thinking by informing policymakers about how price reacts to changes in the international oil price and energy subsidy program. Hence, it is essential to investigate the empirical evidence concerning the relationship between the international oil price and energy subsidy, and price behavior. This study used time series data covering the period 1981–2015 to explore the price behavior on energy subsidy rationalization and oil price fluctuation in Malaysia. To prepare concrete empirical evidence, we employed the autoregressive distribution lag (ARDL) approach to capture the long-run dynamic behavior. Our findings indicated that both factors, oil price and energy subsidy, are significant in influencing the pattern of price behavior. The PPI (Producer Price Index) was more sensitive to changes in the oil price than the CPI (Consumer Price Index). The PPI was found to be affected more while the CPI was less affected. We call on policymakers to provide the Malaysian economic system with a productive social safety net to offset the negative impact caused by energy subsidy reform.

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  • Husaini, Dzul Hadzwan & Puah, Chin-Hong & Lean, Hooi Hooi, 2019. "Energy subsidy and oil price fluctuation, and price behavior in Malaysia:A time series analysis," Energy, Elsevier, vol. 171(C), pages 1000-1008.
    • Handle: RePEc:eee:energy:v:171:y:2019:i:c:p:1000-1008
    DOI: 10.1016/j.energy.2019.01.078
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    2. Edouard Mien, 2022. "Impact of Oil Price and Oil Production on Inflation in the CEMAC," Post-Print hal-03790291, HAL.
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    6. Evans, Olaniyi & Nwaogwugwu, Isaac & Vincent, Olusegun & Wale-Awe, Olawale & Mesagan, Ekundayo & Ojapinwa, Taiwo, 2023. "The socio-economics of the 2023 fuel subsidy removal in Nigeria," MPRA Paper 118360, University Library of Munich, Germany.
    7. Tersoo Shimonkabir Shitile & Nuruddeen Usman, 2020. "Disaggregated Inflation and Asymmetric Oil Price Pass-Through in Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 10(1), pages 255-264.
    8. Alireza Ghadertootoonchi & Maryam Fani & Masoume Bararzadeh, 2020. "The effect of energy subsidies on the sustainability of economy, society and environment: A case study of Iran," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2020(2), pages 93-129.
    9. Husaini, Dzul Hadzwan & Lean, Hooi Hooi, 2022. "Renewable and non-renewable electricity-growth nexus in Asia: The role of private power plants and oil price threshold effect," Resources Policy, Elsevier, vol. 78(C).
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    11. Leila Ben Salem & Ridha Nouira & Christophe Rault, 2024. "On the Impact of Oil Prices on Sectoral Inflation: Evidence from World’s Top Oil Exporters and Importers," CESifo Working Paper Series 10879, CESifo.
    12. Mo, Bin & Zeng, Haiyu & Meng, Juan & Ding, Shaokai, 2024. "The connectedness between uncertainty and exchange rates of oil import countries: new evidence from time and frequency perspective," Resources Policy, Elsevier, vol. 88(C).
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    Keywords

    Energy subsidy; Oil price; Price behavior; Malaysia;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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