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The effects of oil price uncertainty on China’s economy

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  • Xu, Qinhua
  • Fu, Buben
  • Wang, Bin

Abstract

This paper studies the effects of world oil price uncertainty on China’s economy from both empirical and theoretical angles. First, we use a vector autoregression model with stochastic volatility in mean to explore the relation between world oil price uncertainty and real economic activity of China. We find that one standard deviation higher uncertainty shock of world oil price reduces electricity production by almost 0.2 percentage. Then we use a canonical New-Keynesian model solved by third-order perturbation method to explain this phenomenon, in which households’ precautionary saving channel distresses real activity when oil price uncertainty is higher.

Suggested Citation

  • Xu, Qinhua & Fu, Buben & Wang, Bin, 2022. "The effects of oil price uncertainty on China’s economy," Energy Economics, Elsevier, vol. 107(C).
    • Handle: RePEc:eee:eneeco:v:107:y:2022:i:c:s0140988322000287
    DOI: 10.1016/j.eneco.2022.105840
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    5. Zhang, Xiaoyu & Zhou, Jinlan & Du, Xiaodong, 2022. "Impact of oil price uncertainty shocks on China’s macro-economy," Resources Policy, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Oil price uncertainty; China economy; Stochastic volatility;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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