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Inflationary effect of oil-price shocks in an imperfect market: a partial transmission input-output analysis

Author

Listed:
  • Libo Wu

    (Center for Energy Economics ans Strategy Studies, Fudan University)

  • Jing Li

    (Department of World Economy, School of Economics, Fudan University)

  • ZhongXiang Zhang

    (East-West Center)

Abstract

This paper aims to examine the impacts of oil-price shocks on China’s price levels. To that end, we develop a partial transmission input-output model that captures the uniqueness of the Chinese market. We hypothesize and simulate price control, market factors and technology substitution - the three main factors that restrict the functioning of a price pass-through mechanism during oil-price shocks. Using the models of both China and the U.S., we separate the impact of price control from those of other factors leading to China’s price stickiness under oil-price shocks. The results show a sharp contrast between China and the U.S., with price control in China significantly preventing oil-price shocks from spreading into its domestic inflation, especially in the short term. However, in order to strengthen the economy’s resilience to oil-price shocks, the paper suggests a gradual relaxing of price control in China.

Suggested Citation

  • Libo Wu & Jing Li & ZhongXiang Zhang, 2011. "Inflationary effect of oil-price shocks in an imperfect market: a partial transmission input-output analysis," Economics Study Area Working Papers 115, East-West Center, Economics Study Area.
    • Handle: RePEc:ewc:wpaper:wp115
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    Cited by:

    1. Yuwan Duan & Yanping Zhao & Jakob Haan, 2020. "Exchange Rate Pass-through in China: A Cost-Push Input-Output Price Model," Open Economies Review, Springer, vol. 31(3), pages 513-528, July.
    2. Többen, Johannes, 2017. "Regional Net Impacts and Social Distribution Effects of Promoting Renewable Energies in Germany," Ecological Economics, Elsevier, vol. 135(C), pages 195-208.
    3. Sacha den Nijs & Mark Thissen, 2024. "Enhancing Regional Resilience for Energy Price Shocks: Efficient Gas Use and Upstream Decarbonization," Tinbergen Institute Discussion Papers 24-061/VIII, Tinbergen Institute.
    4. Huang, Xuan & Liu, Xueyong, 2022. "The time-frequency evolution of multidimensional relations between global oil prices and China's general price level," Energy, Elsevier, vol. 244(PA).
    5. Claudiu Tiberiu Albulescu & Cornel Oros & Aviral Kumar Tiwari, 2017. "Oil price–inflation pass-through in Romania during the inflation targeting regime," Applied Economics, Taylor & Francis Journals, vol. 49(15), pages 1527-1542, March.
    6. Yang, Dong-Xiao & Wu, Bi-Bo & Tong, Jing-Yang, 2021. "Dynamics and causality of oil price shocks on commodities: Quantile-on-quantile and causality-in-quantiles methods," Resources Policy, Elsevier, vol. 74(C).
    7. John Baffes & M. Ayhan Kose & Franziska Ohnsorge & Marc Stocker, 2015. "The great plunge in oil prices: causes, consequences, and policy responses," CAMA Working Papers 2015-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Ma, Ning & Li, Huajiao & Zhang, Jinwei & Han, Xiaodan & Feng, Sida & Arif, Asma, 2021. "The short-term price effects and transmission mechanism of CO2 cost pass-through in China: A partial transmission model," Resources Policy, Elsevier, vol. 70(C).
    9. Shi, Xunpeng & Sun, Sizhong, 2017. "Energy price, regulatory price distortion and economic growth: A case study of China," Energy Economics, Elsevier, vol. 63(C), pages 261-271.
    10. Pal, Debdatta & Mitra, Subrata Kumar, 2019. "Asymmetric oil price transmission to the purchasing power of the U.S. dollar: A multiple threshold NARDL modelling approach," Resources Policy, Elsevier, vol. 64(C).
    11. Lei Zhu & ZhongXiang Zhang & Ying Fan, 2011. "An Evaluation of Overseas Oil Investment Projects under Uncertainty Using a Real Options Based Simulation Model," Working Papers 2011.83, Fondazione Eni Enrico Mattei.
    12. Damira Keček, 2023. "The Effects of Rising Energy Prices on Inflation in Croatia," Energies, MDPI, vol. 16(4), pages 1-14, February.
    13. Michał Przybyliński & Artur Gorzałczyński, 2022. "Applying the input–output price model to identify inflation processes," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 11(1), pages 1-11, December.
    14. Liu, Yanqi & Chen, Ying & Wu, Wei & Ma, Xiangyang & Yao, Junchen, 2025. "Modeling GDP losses from unexpected oil price shocks: An extended CGE analysis in China," International Review of Financial Analysis, Elsevier, vol. 105(C).
    15. Ju, Yiyi & Fujikawa, Kiyoshi, 2019. "Modeling the cost transmission mechanism of the emission trading scheme in China," Applied Energy, Elsevier, vol. 236(C), pages 172-182.
    16. Nasir, Muhammad Ali & Al-Emadi, Ahmed Abdulsalam & Shahbaz, Muhammad & Hammoudeh, Shawkat, 2019. "Importance of oil shocks and the GCC macroeconomy: A structural VAR analysis," Resources Policy, Elsevier, vol. 61(C), pages 166-179.
    17. Hao Xiao & Shuquan Li & Julien Chevallier & Bangzhu Zhu, 2017. "Electricity-Savings Pressure and Electricity-Savings Potential among China?s Inter-Provincial Manufacturing Sectors," Working Papers 2017-006, Department of Research, Ipag Business School.

    More about this item

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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