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Liquidity and crude oil prices: China's influence over 1996–2011

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  • Ratti, Ronald A.
  • Vespignani, Joaquin L.

Abstract

Movement in China's money supply is shown to drive the movement in world money supply over the last fifteen years. Structural shocks to G3 (U.S., Eurozone and Japan) real M2 and to China's real M2 are both large over 1996:1–2011:12. The cumulative impact of real G3 M2 shocks on real oil prices is small and statistically insignificant. In contrast, the cumulative impact of China's real M2 on the real price of crude oil is large and statistically significant. Following a sharp fall in real oil price in the last half of 2008, the cumulative impact of China's real M2 on the real price of crude oil is particularly substantial in the recovery of oil price during 2009 from a low of $41.68 for January 2009. The analysis sheds light on the causes of movement in oil prices over the last fifteen years and in assessing the relative importance of China in the upsurge of the real price of crude oil.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 33 (2013)
Issue (Month): C ()
Pages: 517-525

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Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:517-525

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Oil price; China's global influence; Oil price and liquidity;

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References

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Cited by:
  1. Ronald A. Ratti & Joaquin L. Vespignani, 2014. "Not all international monetary shocks are alike for the Japanese economy," CAMA Working Papers 2014-14, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Vespignani, Joaquin L. & Ratti, Ronald A, 2013. "Chinese monetary expansion and the U.S. economy: A note‎," MPRA Paper 46961, University Library of Munich, Germany.
  3. Vespignani, Joaquin L. & Ratti, Ronald A., 2013. "Chinese Monetary Expansion and the US Economy," Working Papers 16874, University of Tasmania, School of Economics and Finance, revised 05 Aug 2013.

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