The macroeconomic effect of petroleum product price regulation in alleviating the crude oil price volatility

China adopted a market-based pricing mechanism for petroleum products to improve the economic efficiency of resource allocation, thereby exposing its macroeconomy to higher shocks in world crude oil price volatility. To address the WCOP volatility, the price of petroleum products is subject to government regulations. However, the macroeconomic effects of PPP regulations are yet to be studied thoroughly. Accordingly, this study first quantifies the degree of PPP regulation using a “profit + cost” model, followed by the filtration of the macroeconomic impacts of fiscal and monetary policies and then analyzes the economic effects of PPP using an SVAR model. Furthermore, a counterfactual analysis is conducted to verify the results. It was found that PPP regulation could alleviate the shock of WCOP volatility on industrial value-added, finished fixed asset investment, and the producer price index. These findings provide a deeper understanding of the macroeconomic effects of PPP regulations and provide policymakers with new information on the necessity of PPP regulations.