The Macroeconomic Effects Of Energy Price Shock And The Choices Of Monetary Policy

As the material basis of human society’s survival and development, energy has an important strategic position in the national economy. The outbreak of three energy crisis in 1970s and 1990s poses a huge impact on the world economy, therefore, the impact of rising energy prices on macroeconomic gradually become a hot issue to many economists. In 1993, China turns a crude oil exporter into a crude oil importer. The import volume of crude oil increased year by year, resulting in the increase of external dependency. By 2014, China’s annual import crude oil amount topped 300 million tons for the first time, external dependency reached 59.6%, and the value are still rising, rising import dependency makes China’s energy prices extremely vulnerable to the influence of foreign energy prices. Energy price, as a kind of external shock, its impact on China’s economy is becoming more and more obvious. Therefore, studying the impact of energy price shock on China’s macroeconomic and its transmission mechanism is more important.Energy is an important raw material of production, when energy price rises, production costs of the enterprise will increase, and triggering price level rises, resulting in inflationary pressures. Facing the impact of rising energy prices on macroeconomic, what kind of monetary policy tools should be adopted to response to the energy price shock? Under different monetary policy tools, what kind of impact will energy price shock exert on the macroeconomic? What kind of monetary policy tools is the most effective? Therefore, research on the choice of monetary policy rules under energy price shock has important theoretical significance and practical significance.Based on the carding and summary of the advanced achievements of the domestic and foreign literatures, I adopt the mainstream analysis instruments in the study of macroeconomic. In this paper, I build a dynamic stochastic general equilibrium model that contains energy price shock. At first, this paper builds a real business cycle model of three departments that contains the energy price shock, studying the macroeconomic effects of energy price shock and its transmission mechanism. Then introducing the price stickiness on the basis of real business cycle model, discuss and analysis under the different price assumption, the impact of energy price shock on the macroeconomic. Secondly, we construct a new Keynesian dynamic stochastic general equilibrium model of three departments that contains energy price shock, studying the macroeconomic effects of energy price shock under different monetary policy rules. Discuss and analysis the impulse response under different monetary policy rules, as well as the social welfare loss calculation, to evaluate the optimal monetary policy rules under the energy price shock. Through simulation and analysis of the dynamic stochastic general equilibrium model, this paper gets following conclusions:Firstly, the energy price shock has a negative impact on China’s macro economy. Whether it is in the framework of real business cycle model, or under the framework of the new Keynesian dynamic stochastic general equilibrium model, the positive energy price shock will lead to output, capital stock, energy consumption and other macroeconomic variables in negative movement. At the same time, positive energy price shock will cause inflation to move forward.Secondly, the assumption of sticky prices is more in line with the actual situation of China’s economy. Under the assumption of price elasticity, the effect of energy price shock on the macroeconomic is much smaller than the price stickiness. Under the assumption of the price elasticity, energy price shock has little effect on macroeconomic variables; energy price shock has little impact on the macroeconomic. This is inconsistent with China’s real economy. Therefore, the assumption of sticky prices is more in line with the actual situation of China’s economy.Thirdly, the interest rate rules are more effective than the money supply rules. When the economic system is subjected to energy price shock, in the interest rate rules, the real economy can make adjustments quickly to tend to the steady-state level, compared to the real economy under the money supply rules, which is helpful to maintain the stability of the macroeconomic, therefore, we can conclude that the interest rate rules are more effective than the money supply rules. In the interest rate rules, social welfare losses caused by energy price shock and technology shock are less than the social welfare losses under the money supply rules. From the perspective of minimizing the social welfare losses, we can also get the conclusion that the interest rate rules are better than the money supply rules.