Research On Oil Price Uncertainty And The Chinese Economy

In the international crude oil market today, the turbulent volatility in oil pricesshows a distinctive feature more than its high running. This paper studies the effect ofoil price uncertainty on China’s economic growth and analyzes its role on explainingthe asymmetric relationship between oil change and China’s economic growth.Firstly, combined with data characteristics, it builds a GARCH-in-Meaneconometric analysis framework based on binary VARMA model to study the impactof oil price uncertainty on China’s economic growth. The results show that negativeoil price can cause a greater oil price uncertainty than positive one. Oil priceuncertainty has a negative impact on China’s economy at the significance level of10%. Then, it establishes a VAR system of four variables including oil price change,oil price uncertainty, economic growth, and economic growth uncertainty, andexamines the dynamic relationship between oil price uncertainty and China’seconomic growth. The results show that the increase of international oil prices doesn’thave a significant inhibition on China’s economy as expected, but shows thecharacteristics of alternating positive and negative effects with the former mainly inthe first two months and the latter mainly in the second two months. The increase ofoil price uncertainty causes a weak increase in China’s economic growth in the firstmonth and a decrease in the following five months. However, with respect to the oilprice itself, the impact of oil price uncertainty on China’s economic growth is weaker.Secondly, based on the oil price definition of Mork and Hamilton, it re-examinesthe asymmetric effect of oil prices changes on economic growth in China. The resultsfind that the positive and negative oil prices affect China’s economic growth not in astrictly asymmetric way, but have the same role path. Oil price change cannot cause aresponse of China’s monetary policy which provides the evidence of monetarypolicy’s inability in China in explaining the asymmetric effect, while oil priceuncertainty channels can partially explain the asymmetric relationship betweenChina’s economic growth and oil price change based on F statistic.