The Dynamic Effects Of Oil Price Shocks On China's Industry Prices

The demand for oil shows a rapid expansion in the process of China's economic development.China now becomes the world's largest importer of crude oil.At the same time as an important energy in the industrial production process,oil plays an important role.Therefore,with the increasing dependence on oil import and violentfluctuation of oil price,the dynamic effects of oil price shocks on China's economy is becoming more and more significant.It is necessary to identify the dynamic transmission of oil price shocks on the Chinese economy,so as to improve the accuracy of economic forecast and increase the initiative ofregulation.Macroeconomic variables have effect on the industry price,sowhen considering the impact of oil price shocks on industry prices,the effects of macro variables should be taken into account.In this paper,we use the empirical research method,that is SVAR model including macro block and industrial block.Kiseok and Shawn(2002)have found that the density function of macrovariablesdoes not depend on the observations on the industry-specific variables,that is to say,,macrovariable block is the samefor different industries.Therefore,for each industry the covariance of macrovariables remains unchanged when estimating the effect of oil price shocks on industry prices.The macrovariables are oil price,output,inflation,m2 and interest rate.The industry variable is the MoMratio of the PPI of the industrial enterprises above the industry scale.The scope of study is mining industry,manufacturing industry,electrical and thermal gas and water production and supply industry.In this paper,we estimate a SVAR(q)for each industry to study the response patterns.The time period is from February 2002 to December 2015,a total of 167 monthly data.The first of the paper is about the background,meaning,structure and shortcoming;The second chapter is the literature review,including the transmission mechanism of the oil price shocks,the macroeconomicand industry;The third chapter is the core of the paper,constructing SVAR model with macrovariable block and industry block.We study the dynamic effect of oil price shocks on China's economy and industry prices from the perspective of industry andmake further analysis;the fourth chapter is the conclusion and policy implications.The positive oil prices shockgives downward pressureon industrial added value whichconfirms the relationship between oil prices and output,but this relationship is.not significant.In addition,we also find that the positive shock of oil price will raise inflation,indicating that the oil price shock mainly has supply side effect.In addition to studying the response of macrovariables,this paper also studies thePPI of 38 industries separately.The study finds that almost all industries that respond significantly to oil prices shock have a tendency to move upwards in the face of positive shocksof oil prices,and the reaction of the primary petroleum products industryis generally rapid and have the greatest effect in the current period of oil price shocks;for the other industries,it is the highest in the second period.In addition to supply-side shock caused by the general rise of oil price,there is a demand side effect for some industries,but the effect is not significant,presumably because of China's oil price reform system.Through the study,it is possible to identify the dynamic transmission of oil price shocks on Chinese economy from the perspective of the industry,which is a more detailed way.Besides,ithelp the government to carry out more targeted policies to control and stabilize Chinese economy.However,there are some shortcomings in the study of this paper.First,because of a lack of monthly data of industry output,the industry variable is only expressed by the variable of industry price;Second,with the global economic integration,The influence of the global economy is becoming more and more significant,but this paper juststudiesin the domestic dimension.