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Why the Effects of Oil Price Shocks on Chinas Economy are Changing

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  • Shouyang Wang, Xun Zhang, and Lin Zhao

Abstract

Some studies on developed economies have revealed that the impacts of oil price shocks have decreased while conclusions about China remain occluded. We investigate the changing effects of oil price shocks on China's macroeconomy and discuss the causes. A time-varying parameter vector autoregressive (VAR) model reveals that impacts of oil price shocks on Chinaýs economy have shown a downward trend since 1997. The responses of the real output are much greater and last longer than those of inflation. Then a new Keynesian dynamic stochastic general equilibrium model is developed to synthetically explore the causes. The results indicate that decreasing oil intensity and monopoly power reduce the effects of oil price shocks, while increasing capital intensity in production amplifies them. Other factors-such as changing price stickiness, deregulation of refined oil prices, and shifts in monetary policy targets-have limited effects on the relationship between oil price shocks and China's macroeconomy.

Suggested Citation

  • Shouyang Wang, Xun Zhang, and Lin Zhao, 2020. "Why the Effects of Oil Price Shocks on Chinas Economy are Changing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6), pages 107-132.
    • Handle: RePEc:aen:journl:ej41-6-zhang
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    Cited by:

    1. Fan, Zhenjun & Zhang, Zongyi & Zhao, Yanfei, 2021. "Does oil price uncertainty affect corporate leverage? Evidence from China," Energy Economics, Elsevier, vol. 98(C).
    2. Zhang, Xiaoyu & Zhou, Jinlan & Du, Xiaodong, 2022. "Impact of oil price uncertainty shocks on China’s macro-economy," Resources Policy, Elsevier, vol. 79(C).

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    JEL classification:

    • F0 - International Economics - - General

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