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 …