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The relationship between oil price shocks and China's macro-economy: An empirical analysis

  • Du, Limin
  • Yanan, He
  • Wei, Chu

This paper investigates the relationship between the world oil price and China's macro-economy based on a monthly time series from 1995:1 to 2008:12, using the method of multivariate vector autoregression (VAR). The results show that the world oil price affects the economic growth and inflation of China significantly, and the impact is non-linear. On the other hand, China's economic activity fails to affect the world oil price, which means that the world oil price is still exogenous with respect to China's macro-economy in time series sense, and China has not yet had an oil pricing power in the world oil markets. The structural stability tests demonstrate that there is a structural break in the VAR model because of the reforms of China's oil pricing mechanism, thus it is more appropriate to break the whole sample into different sub-samples for the estimation of the model.

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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 38 (2010)
Issue (Month): 8 (August)
Pages: 4142-4151

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Handle: RePEc:eee:enepol:v:38:y:2010:i:8:p:4142-4151
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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