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Crude Oil Prices: China’s Influence Over 1996-2011

Industrial production and liquidity in China and liquidity in other major countries are introduced into the Kilian (2009) model identifying the supply and demand side factors driving real oil price changes. It is recognized that China’s real liquidity may proxy for real income increase in China. Unanticipated increases in China’s liquidity cause large significant increases in real oil prices that persist. Positive innovations to G3 liquidity raise real oil price by much smaller amounts before eroding. Following a sharp fall late in 2008 real oil price rose strongly during 2009-2010. This rise is associated with shocks from China’s liquidity during 2009 and recovered global demand for industrial commodities during 2010. Global demand for industrial commodities reacts positively to China’s industrial production and liquidity.

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File URL: http://eprints.utas.edu.au/15728/2/2012-10__DP_Ratti_Vespignani.pdf
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Paper provided by University of Tasmania, Tasmanian School of Business and Economics in its series Working Papers with number 15728.

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Length: 20 pages
Date of creation: 17 Dec 2012
Date of revision: 17 Dec 2012
Publication status: Published by the University of Tasmania. Discussion paper 2012-10
Handle: RePEc:tas:wpaper:15728
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