Empirical Research On The Impact Of Monetary Policy On Energy Price In China

As China’s energy reform has been reaching an important stage, the energy price reform has gone into a crucial period as a core part of it. Energy prices will gradually go up, giving full play to the decisive role of the market in resources assignment. The traditional view is that the influence of monetary policy on energy prices is not obvious, so the Central Bank should not concentrate on it. However, this view becomes increasingly taken issue with the reality.Starting with the relevant theory and current development status of monetary policy and energy price,this paper’s effort has been focused on empirical research of effects of money supply and monetary policy tools on the energy prices. The energy function is introduced into the IS-LM model to analyze the impact of money supply on energy prices. Then the Vector Autoregression model(VAR) is used to assess the impacts of a variety of monetary policy tools on energy prices. The main text as follows:Firstly, after introducing the theory of monetary policy and energy price, the paper analyzes the transmission mechanism of monetary policy affecting energy prices. And then this paper summarizes the adjustment process of China’s monetary policy and the current status quo of energy price.Secondly, this paper establishes the multiple linear regression model of the composite price index of coal & oil & electricity and explains variables as GDP gap and money supply based on the IS-LM model which contains energy factor. And then the paper analyzes the influence level of the money supply to energy price.Thirdly, monetary policy tool variables which can lead to the change of the energy price are selected by the Granger causality test. These variables and the composite price index of coal & oil & electricity are contained in the VAR model. Through the impulse response function, this paper reveals each monetary policy variables’ impact on the energy price. What’s more, the paper analyzes the fluctuations contribution of monetary policy variables to energy price by variance decomposition.Lastly, this paper summarizes the empirical results, analyzes the practical significance, and makes an explanation that adapts to our monetary policies and energy development situation. Based on the results of empirical analysis, some recommendations are put forward to deal with the volatility of the energy price and solve the problems which are met in energy development.