Responses to World Oil and Coal Shocks, in a Short Run Fuel Substitution Tax Model

TitleResponses to World Oil and Coal Shocks, in a Short Run Fuel Substitution Tax Model
Publication TypeJournal Article
Year of Publication1905
AuthorsHall, V
JournalThe Australian Economic Review, Vol. 3, pp. 25-38, 1989
KeywordsAustralia, Macroeconomic, Structural variables, Oil, Coal, Prices, ORANI-LFT, Energy

This article examines effects on major Australian macroeconomic and structural variables of simultaneous shocks to world oil and black coal prices. The illustrative numerical results have been produced with the short-run fuel substitution tax model, ORANI-LFT. The current version of that model reflects the Australian Governmet's pre-1988 oil regulatory framework, and the simulations reported in this study reflect the recent switch from significant dependence on crude oil levy revenue to petroleum products excise revenue. Empirical results show that combined world oil and coal price shocks lead to substantially different effects than would occur from an oil shock alone. A major implication of this, for a small open economy such as Australia, is that particular attention has to be paid to the interdependence of world energy market, both when analysing the effects of such shocks and when formulating appropriate macroeconomic and energy policy responses. It is also pointed out how the model could be modified for investigating effects under deregulated oil market regimes. Copyright 1989 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.