Dynamic Equilibrium Simulation Of Macroeconomic Impacts Of Oil Prices Under Uncertainty

Considering the increasing scale, rigidity and foreign depencencd of petroleum demand for China, as well as the transformation in domestic petroleum markets, the impacts of high international oil price and its fluctuation on Chinese macro-economic performances has attracted massive concerns. More importantly, Chinese economy is in the middle of industrialization process, and thus, the industrial structure and technical roadmaps are very sensitive to external shocks. The coupling of uncertainties in domestic economic system and international economic environments complicated analysis on economic impacts of oil price shocks on Chinese economy.In this thesis, I established a dynamic Computable General Equilibrium (CGE) model, which, on one hand, specified the investment mechanism of economic agencies on microeconomic level so as to model the internal dynamic of economic growth and structural change, and on the other hand, specified the market structure, policy constraints, endowments restraints and functioning mechanism of domestic energy markets.Above all, the model expanded traditional CGE model technique in three aspects:1) it combined Monte Carlo stochastic experiments methodology with CGE numerical simulation, and analyzed the impacts of uncertainty in oil price fluctuation;2) Rational Expectation (RE) was modeled using Perceived Correlation Methodology in order to accommodate RE with Monte Carlo experiment; and3) Value at Risk (VaR) model was used to simulate risk aversion activities of agencies, given uncertainties in international oil price fluctuation.Simulation results indicated that with increasing oil price level and uncertainty, expected yearly GDP growth rate would be lowered by0.1-0.15%, compared to no-energy-price-change (NULL) scenario, and GDP would be lowered by0.99%in2015,1.52%in2020and2.54%in2030. In the total effect, uncertainty accounted for a significant proportion. The direct impact of uncertainties in oil price fluctuation, namely the impact of unexpected oil price shocks, together with the indirect impact, namely the impact of risk aversion activities of agencies caused by uncertainties, dampens the GDP output by0.09～0.19%. With rational expectation, higher expectation of future oil price would dampen investments in energy intensive industries and redirected capital flow into low energy intensive sectors. The endogenous adjustment of industrial structure according to expected oil price lowers the sensitivity of economy to oil price shocks.On the basis of the dynamic CGE model, I estimated the effects and economic implications of several countermeasures and policies for oil price increase and fluctuation, including reforming toward market oriented petroleum pricing mechanism, anti-monopoly in petroleum product markets, optimizing energy structure, promoting energy saving technologies and establishing strategic petroleum reserves. The simulation results indicated that reforming pricing mechanism and anti-monopoly are the most important policies. They not only have the most significant effects on macro-economic output and stability, but also are fundermental for the effectiveness for other policies.The energy conservation technologies are not sufficiently suitable for China, due to the inferiority costs. Under market oriented policy mechanisms, the penetration of new technologies is limited, and will not lead to significant output improvement, except for low carbon transportation. However, industrial policies which enforce penetration of energy conservation technologies, would be effective in promoting new technologies, but would also lead to unbearable economic losses.