The Impact Of The International Oil Price Volatility On China’s Inflation

In recent years, with the continuous development of world economy and depleting Oil resources, international oil prices began climbing. In the case of China’s oil prices having integration with the international oil market, wide fluctuations in international oil prices is bound to a great impact on China’s domestic energy prices. As energy prices has a strong amplification effect on price rising, rising costs of upstream industries as power, transportation, smelting or links will be steadily enlarged in the process of passing to the downstream industries and production processes, which will lead to the general rise in the overall price level of the whole society. Particularly in the post-financial crisis era, how to stabilize our energy prices, to avoid inflation and prevent economic recession under the impact of international oil prices, has become an important issue which our government and scholars pay attention to and study. Therefore, studying on the impact of the international oil price volatility on China’s inflation has important practical significance.This paper, taking the impact of international oil price shocks on inflation in China as the research object, firstly researches the characteristics and causes of China’s inflation in the present stage; then, analyzes the characteristics of fluctuations in international oil prices based on the GARCH model; and then using monthly data from January1999to2012February, studies the impact of international oil price shocks on China’s domestic price levels from an empirical point of view; and then, analyzes and identifies a way that the fluctuations of international oil price affects the price level in China. At last, the nonparametric regression model and semi-parametric regression model is introduced to study the relationship between international oil prices and China’s inflation. In previous studies, what most scholars used are kinds of parameter models. However, this paper attempts to make a useful complement to the research methods in this problem, and in accordance with the conclusions, provides a reference for the government to deal with inflation and the formulation of macroeconomic policy.The innovation of this paper is:Firstly, the selection of index. In this article, Brent crude oil spot prices the IMF released is selected as a representative of the international oil prices, from which is different that most scholars selected WTI crude oil spot prices. The reason is that WTI crude oil prices is vulnerable to the impact of the local supply and demand, which has nothing to do with the changes in the market fundamental of global crude oil. In addition, the indicator of domestic energy prices selected in this article is the coal-oil-electricity price index which is able to represent the overall price level of China’s energy. Secondly, the selection of methods. In addition to using a GARCH model, Johansen co-integration test, Granger causality test and pulse response function based on the VAR model, two special nonlinear models—nonparametric model and semi-parametric linear regression model-also is introduced particularly. Especially, the semi-parametric linear regression model is not only to overcome the risk of parameter model misspecification, but also to solve the problem of the curse of dimensionality and that the interpretation of non-parametric model is weaker, so it is able to solve a variety of economic issues better in real life.