Effect Of International Oil Price Shocks On China’s Economy

Oil, as the lifeblood of modern industry, attracts more and more attentions, and it has a high strategic position as an exhaustible resource and the focal point of the world. Compared with other commodities, a lot of factors affect the oil price’s fluctuations, the relationship among the factors is complex, resulting in a significant influence. Economic development in China’s dependence on foreign oil is getting higher and higher, the international oil price fluctuations and the impact of China’s economic development are the important issues of oil prices and take a lot of attention from the world. Therefore, this paper studies the impact of the factors that affect international oil prices and oil price volatility for the domestic economy, and provides an effective theoretical basis for solving the domestic oil contradictions and stabilizing the domestic economy.Firstly, This paper describes the Chinese demand for oil and the degree of import dependency, and on the basis of the relationship between supply and demand, supplemented by political and weather uncertainties, takes a review of the historical evolution of the international oil price fluctuations, and takes the example of the U.S. oil futures market, makes an analysis of the speculative factors for oil prices, saying that international oil prices are volatile, dramatic oil price fluctuations will affect the international economy and have a negative impact. The main work of the paper is using the VAR regression model and Granger causality test to study the international oil prices on inflation between China and the United States, the result is that the international oil price is U.S. inflation Granger reasons, not China’s inflation Granger reason. Using cointegration theory analysis showed that fluctuations in international oil prices have an impact on the gross domestic product (GDP), proved the existence of long-term co-integration relationship between international oil prices and China’s GDP, oil prices maintains the growth at a rate of1%within a year which will make China’s GDP growth low to0.02%. According to the conclusions of this study, it is proposed to improve the oil reserve, update the oil utilization and development of new energy recommendations to deal with the fluctuations in international oil prices and stabilize the China’s macroeconomic.