The Effects Of The U.S. Price Control Policies On OPEC: Lessons From The Past

In 1973-1974, the U.S. faced the so-called “Energy Crisis” due to the Arab oil embargo and a quadrupling of world crude oil prices by OPEC.  This led the U.S. to use a” Price Control” policy in the domestic energy market.  The effects of such policy are explored and well documented.  However, the responses of OPEC producers to such a policy need further attention.  This paper examines the effects of these price controls on OPEC’s extraction path and the relation between the harm function and the change in OPEC production.  The results show some evidence that OPEC did respond differently to price controls applied by the U.S.  For some periods it cut production, while in other periods production levels increased.  The results also show some evidence regarding Wirl (2008) that OPEC includes political support as part of its objective function when it comes to oil extraction

Non-linear convergence in Asian interest rates and inflation rates

We examine the dynamics of convergence of the ASEAN5 plus the big three for nominal interest rates, inflation rates, and real interest rates. We test for convergence relative to the U.S and Japan, using monthly data over the period January 1990 - December 2010, using non-linear unit root tests. The results show strong evidence of stationary inflation and real interest rate differentials in all but China’s inflation differential relative to the U.S., and stationary nominal interest differentials in most of the cases. We interpret these results as convergence in inflation rates and real interest rates in all cases, and as nominal interest convergence in most of the cases. Moreover, examining the impact of the Asian crisis shows less number of convergences before the crisis and more convergences after the crisis. This suggests that convergence has increased after the 1997/98 Asian crisis, and that the crisis has pulled the economies together.interest rates convergence; inflation convergence; nonlinear unit root tests

Non-linearities in the dynamics of oil prices

We utilize non-linear models to examine the stationarity of oil prices (Brent, Dubai, WIT and World) over the period 1973:2-2011:2. Real oil prices are calculated and expressed in the domestic currencies of seven Asian countries (Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore and Thailand) and in the U.S dollar. Applying linear unit root tests with and without structural breaks shows very limited evidence of stationarity. However, applying non-linear models shows evidence of non-linearity in all the cases. In most cases, we find significant evidence of exponential smooth transition autoregression (ESTAR) type non-linearity. Notably, the results for Japan suggest logistic (LSTAR) type non-linearity for the four oil prices. Applying unit root tests, which account for two types of non-linearities (smooth transition and nonlinear deterministic trends), reveals evidence of stationarity in all the cases.oil prices; nonlinear unit root tests; nonlinear deterministic trends; smooth transition autoregression

A Review Of Econometric Approaches For The Oil Price-Exchange Rate Nexus: Lessons For ASEAN-5 Countries

This paper reviews alternative econometric approaches the literature has used to examine the connectedness between oil prices and exchange rates and illustrates their application using quarterly data from 1970: Q1 to 2022: Q1 for ASEAN-5 countries, which are as follows: Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Although most studies examining the impact of oil prices and exchange rates apply the Ordinary Least Squares (OLS) approach with symmetry, the quantile regression (QR) method is shown to offer a thorough investigation of the connectedness. For ASEAN-5 countries, we present a comparative analysis of both methodologies (OLS and QR) with and without asymmetry. Our findings suggest that asymmetric effects triggered by oil prices are noticeably heterogeneous across quantiles. Hence, future studies should allow for asymmetry in the oil price by decomposing the price into positive and negative changes to further investigate the connectedness between oil prices and exchange rates

The effects of the U.S. price control policies on OPEC: lessons from the past

In 1973-1974, the U.S. faced the so-called “Energy Crisis” due to the Arab oil embargo and a quadrupling of world crude oil prices by OPEC. This led the U.S. to use a” Price Control” policy in the domestic energy market. The effects of such policy are explored and well documented. However, the responses of OPEC producers to such a policy need further attention. This paper examines the effects of these price controls on OPEC‟s extraction path. It also examines the relation between the harm function and the change in OPEC production. The results show some evidence that OPEC did respond differently to price controls applied by the U.S. For some periods it cut production, while in other periods production levels increased. The results also show some evidence regarding Wirl (2008) that OPEC includes political support as part of its objective function when it comes to oil extraction

The effects of the U.S. price control policies on OPEC: lessons from the past

In 1973-1974, the U.S. faced the so-called “Energy Crisis” due to the Arab oil embargo and a quadrupling of world crude oil prices by OPEC. This led the U.S. to use a” Price Control” policy in the domestic energy market. The effects of such policy are explored and well documented. However, the responses of OPEC producers to such a policy need further attention. This paper examines the effects of these price controls on OPEC‟s extraction path. It also examines the relation between the harm function and the change in OPEC production. The results show some evidence that OPEC did respond differently to price controls applied by the U.S. For some periods it cut production, while in other periods production levels increased. The results also show some evidence regarding Wirl (2008) that OPEC includes political support as part of its objective function when it comes to oil extraction

Non-linear convergence in Asian interest rates and inflation rates

We examine the dynamics of convergence of the ASEAN5 plus the big three for nominal interest rates, inflation rates, and real interest rates. We test for convergence relative to the U.S and Japan, using monthly data over the period January 1990 - December 2010, using non-linear unit root tests. The results show strong evidence of stationary inflation and real interest rate differentials in all but China’s inflation differential relative to the U.S., and stationary nominal interest differentials in most of the cases. We interpret these results as convergence in inflation rates and real interest rates in all cases, and as nominal interest convergence in most of the cases. Moreover, examining the impact of the Asian crisis shows less number of convergences before the crisis and more convergences after the crisis. This suggests that convergence has increased after the 1997/98 Asian crisis, and that the crisis has pulled the economies together

Non-linearities in the dynamics of oil prices

We utilize non-linear models to examine the stationarity of oil prices (Brent, Dubai, WIT and World) over the period 1973:2-2011:2. Real oil prices are calculated and expressed in the domestic currencies of seven Asian countries (Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore and Thailand) and in the U.S dollar. Applying linear unit root tests with and without structural breaks shows very limited evidence of stationarity. However, applying non-linear models shows evidence of non-linearity in all the cases. In most cases, we find significant evidence of exponential smooth transition autoregression (ESTAR) type non-linearity. Notably, the results for Japan suggest logistic (LSTAR) type non-linearity for the four oil prices. Applying unit root tests, which account for two types of non-linearities (smooth transition and nonlinear deterministic trends), reveals evidence of stationarity in all the cases

Non-linear convergence in Asian interest rates and inflation rates

We examine the dynamics of convergence of the ASEAN5 plus the big three for nominal interest rates, inflation rates, and real interest rates. We test for convergence relative to the U.S and Japan, using monthly data over the period January 1990 - December 2010, using non-linear unit root tests. The results show strong evidence of stationary inflation and real interest rate differentials in all but China’s inflation differential relative to the U.S., and stationary nominal interest differentials in most of the cases. We interpret these results as convergence in inflation rates and real interest rates in all cases, and as nominal interest convergence in most of the cases. Moreover, examining the impact of the Asian crisis shows less number of convergences before the crisis and more convergences after the crisis. This suggests that convergence has increased after the 1997/98 Asian crisis, and that the crisis has pulled the economies together

Economics of oil prices and the role of OPEC

Two oil price shocks changed the pattern of cheap oil. The first was the Arab embargo on oil exports in 1973. Oil prices rose five fold. In 1978, the second was the fall of Shah Iran. Prices soared to $80-$100 a barrel in today\u27s prices. ^ In 1960, OPEC was established and since then it has been a considerable political and economical force in the oil market. Two thirds of the world\u27s oil reserves belong to OPEC members. When we look at the oil prices over the past years, one could argue that OPEC is responsible for most of the price increases due to their production cuts and market power. This dissertation provides a general framework to examine the role of OPEC in affecting oil prices through the extracted quantities. ^ A mathematical model is developed to explore the objective function of OPEC, which includes economic and political considerations. The idea is that OPEC members consider both the political support of their citizens and profits when determining oil extraction rates. ^ This support is represented by a harm function which was added to the objective function of OPEC. The solution of the model lends some support for inclusion of this harm function, through which OPEC benefits from the cuts in production aimed at harming the western countries. For this harm function to be meaningful empirically, OPEC members should have a high harm indicator, α t. ^ With high harm indicator values, OPEC harms itself financially. The results suggest that OPEC appears to be accepting considerable monetary set backs to appease its citizens\u27 taste for harming the West. At different discount rates, the monetary losses range from about 10-20%. ^ Solving the mathematical model required estimation of the residual demand that OPEC faces plus the cost function that applies to OPEC production. This dissertation reports the results of these estimations. ^ Finally, this dissertation looks at the effect of the price control policies adopted by the U.S. on OPEC. It provides some evidence that OPEC did respond to these price controls, but not in a monotonic fashion. For some periods it did cut production while in other periods production levels increased.