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The asymmetric effects of international oil prices, oil price uncertainty and income on urban residents’ consumption in China

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  • Long, Shaobo
  • Zhang, Rui

Abstract

This study employs the nonlinear autoregressive distributed lag (NARDL) model to investigate the asymmetric effects of international oil prices (oil price uncertainty) and urban residents’ income on consumption in China. The empirical results show that the asymmetric effects of oil prices (oil price uncertainty) and urban residents’ income on consumption are significant in the both the short- and long-term. Specifically, increasing urban residents’ consumption significantly respond to a decline in oil prices while there is no obvious decreased consumption response to a rise in oil prices due to the wealth transfer effect. We also observe that the stimulating effect of falling oil price uncertainty on urban residents’ consumption is noticeably stronger than the adverse effect of increasing oil price uncertainty on consumption because of the expectation effect. Finally, we find that the asymmetric effect of income changes on consumption is significant due to the ratchet effect, whereby an income increase has a stronger stimulus effect than the reducing effect of income decline on consumption.

Suggested Citation

  • Long, Shaobo & Zhang, Rui, 2022. "The asymmetric effects of international oil prices, oil price uncertainty and income on urban residents’ consumption in China," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 789-805.
    • Handle: RePEc:eee:ecanpo:v:74:y:2022:i:c:p:789-805
    DOI: 10.1016/j.eap.2022.04.008
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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