Crude Oil Price Uncertainty:Transmission Paths,Economic Impact And Monetary Policy’s Responses

As a basic material resource,crude oil is the cornerstone of industrial production and residential life,and provides power for economic and social development.With the continuous advancement of industrialization and urbanization,China’s demand for crude oil has expanded significantly and China has now become the largest consumer of crude oil in the world.In addition,due to the limitation of oil production,China’s crude oil consumption mainly relies on imports.In fact,China has become the world’s largest crude oil importer since 2015,and its dependence on import is still on the rise.At the same time,with the gradual deepening of energy financialization,crude oil prices gradually deviate from the behavior law of supply and demand fundamentals,and the financial attribute and geopolitical attribute of crude oil gradually show.Besides,due to the frequent occurrence of“Black Swan Events”,such as the Corona Virus Disease-2019,the crude oil price war and the Russia-Ukraine conflict,crude oil market contains more uncertainty,complexity,and unpredictability.Under the complex background of high domestic demand for crude oil and turbulent international crude oil market,this thesis follows the research line of“proposing questions（?）literature review（?）theoretical model（?）empirical model（?）conclusions and suggestions”,and contains the following issues:the transmission paths of oil price uncertainty,the measurement of oil price uncertainty and its dynamic features,the impact of total crude oil price uncertainty on the macro-economy under different regimes,the volatility spillover effects of crude oil price multiple sources uncertainty on China’s macro-economy,the responses of China’s monetary policy to oil price uncertainty shocks and the regulation effects of monetary policy.Firstly,the thesis explores the transmission paths of crude oil price uncertainty shocks.Based on the structural characteristics of China’s energy consumption,a dynamic stochastic general equilibrium model,incorporating household gasoline consumption,diesel consumption in the transport sector and crude oil factor inputs in industrial production,is constructed to investigate the transmission paths of crude oil price uncertainty.Here are the results:since cars and petrol should be used together,with incerasing crude oil price uncertainty,households tend to increase their precautionary savings and immediately reduce their consumption of durable goods such as cars,which leads to a shortfall in aggregate market demand and hence a decline in output.In addition,due to the price stickiness in the market,when the crude oil price uncertainty shocks,manufacturers believe that the future market demand will be sluggish.Then,intermediate product manufacturers who can freely adjust prices will increase prices to maximize discounted profits,resulting in a rise on inflation.Furthermore,increasing competitiveness in the transport sector,consistently reducing energy intensity and appropriately reducing labor supply elasticity can weaken the negative macroeconomic impact of crude oil price uncertainty on China.On the basis of clarifying the transmission paths of crude oil price uncertainty shocks,the thesis conducts a series of empirical studies.Since the effective measurement of crude oil price uncertainty is the basis for subsequent empirical studies,the 4^th chapter measures the crude oil price uncertainty.With the network centrality-weighted high-dimensional factor unanticipated conditional volatility model,the 4^th chapter measures the total and multiple sources oil price uncertainty and analyses this dynamic characteristics.The empirical results reflect that since our model contains information of195 influencing factors in 6 categories including crude oil production,demand,inventory,exchange rate,price and geopolitical risk index,the total crude oil price uncertainty index constructed in this thesis can better reflect the volatility characteristics of the international crude oil market in different periods,and is more reasonable,forward-looking and objective than other existing crude oil price uncertainty indices.Besides,based on Kilian（2009）,this thesis further constructs oil supply uncertainty,oil demand uncertainty and oil-specific demand uncertainty.By comparing dynamic characteristics of above three oil price uncertainty categorized indexes,this thesis finds that the risk sources of crude oil market varies in different historical periods.With the oil price uncertainty indexes constructed above,this thesis further investigates oil price uncertainty’s economic impacts.From the global perspective,the thesis explores the impact of crude oil price uncertainty on China’s output growth under different regimes by using the convergent cross-mapping causality test and the vector autoregressive model with Markov regime switching characteristic.The results show that oil price uncertainty has a significant negative impact on China’s investment and output.Furthermore,when the economic system is in a high oil price uncertainty and high macroeconomic volatility regime,oil price uncertainty’s dampening impact on China’s investment growth and output growth will be more persistent and significant.Besides,from the perspective of different risk sources,the thesis investigates the volatility spillover effects of multiple sources uncertainty of the crude oil market on China’s macro-economy by using the non-parametric quantile Granger causality test and quantile vector autoregressive volatility spillover index model.The empirical results show that the degree of risk contagion between multiple sources of oil price uncertainty and the China’s macro-economy is much higher in extreme market conditions than that in normal market conditions.The static spillover effects of oil supply,oil demand and oil-specific demand uncertainty on China’s macro-economy differ at different quantile levels.In fact,oil demand and oil-specific demand uncertainty are net exporters of risk to inflation at mid to high quantile levels,and crude oil-specific demand uncertainty is the net exporter of risk to output at almost all quantile levels.In addition,the results of dynamic spillover effects reflect that the main sources of crude oil price uncertainty that drive macroeconomic volatility in China vary across time.From both theoretical and empirical perspectives,the last chapter of this thesis investigates the responses of China’s monetary policy to oil price uncertainty,and monetary policy’s regulation effects and heterogeneous impacts on different industries when crude oil price uncertainty is at different levels.The results show that China’s central bank conducts expansionary monetary policy to smooth out the negative impact of crude oil price uncertainty shocks,and that the monetary policy is more expansionary in periods of high oil price uncertainty than that in periods of low oil price uncertainty.The thesis finds that the increase in crude oil price uncertainty will not change the regulation direction of China’s monetary policy in output and inflation,but will affect the regulatory effects of both quantitative and price-based monetary policies.In addition,since the upstream sector of the crude oil industry chain contains a large number of state-owned enterprises,mainly use capital and faces a monopolistic market,China’s monetary policy is less effective in regulating output and price levels in the upstream sector,compared to that of the midstream and downstream sectors.In general,the thesis firstly constructs a theoretical model with Chinese characteristics to clarify the transmission paths of oil price uncertainty.Then,this thesis measures oil price uncertainty and investigates its economic impact.Last but not least,the thesis explores the responses of China’s monetary policy to oil price uncertainty,and investigate monetary policy’s regulation effects.These studies above are of great theoretical and practical significance.This thesis not only provides a useful addition and marginal extension to existing research,but also provides empirical evidence as well as policy suggestions for policy authorities to formulate effective risk prevention strategies for the international crude oil market.