Impact From International Crude Oil Price Fluctuation On The Effectiveness Of Domestic Monetary Policy

The impact of international crude oil prices as the representatives of the external shocks, its shock on macroeconomic was concerned by a wide range of economists since1970s. Crude oil is one of the most important energy and raw materials, the increase of its price will inevitably lead to general price level increases, may ultimately result in the fall in output and inflation and resulting in a far-reaching impact on the running of the overall macroeconomic. With the continuous development of China’s economy, the gradual increase in demand for energy, China’s crude oil dependence on foreign trade has risen to more than50%, to become the world’s second-largest oil consumer. However, because of we lack of oil pricing, the international crude oil price shocks on China’s economy has increasingly become one problem that cannot be overlooked.International crude oil prices shocks will affect the economy directly, and also by the monetary policy to influence the economy. First, this paper has describe the facts between international crude oil price shocks and China’s economic. And then combined with the actual situation in China, this paper has used the general equilibrium to analysis international crude oil shocks and it shows the non-monetary policy is ineffective. Further, this paper uses the AS-AD model to discuss the monetary policy effectiveness under different target.Secondly, the basis of SVAR model to examine the impact of international crude oil prices on China’s macro-economic impact. The empirical results show that international crude oil prices will significantly affect China’s domestic oil prices, output and inflation, in particular, is a long-term role of inflation, and the implementation of monetary policy can significantly improve the decline in output price index rose. However, for the use of interest rate policy is superior to the use of the money supply, because the larger the response of the economy on money supply may lead to severe economic fluctuations.Finally, according to the empirical results, this paper proposes some relevant policy recommendations.