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Should rising oil prices or monetary policy bear more responsibility for the economic recession? Empirical evidence from China

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  • Yun-Shu Tang
  • Jian-Ling Jiao

Abstract

Based on Chinese macroeconomic monthly data from January 2001 to December 2010, a structural vector autoregression (SVAR) model is used to assess the difference in the impact of the central bank's monetary policy on output, before and after eliminating responses to oil price volatility, and to separate the net impact of oil price volatility on output. Results for the response to an impulse show that when the interference of monetary policy responses with oil price volatility is removed, the short-term negative impact of oil price shocks on output disappears. Variance decomposition results show that the contributions of oil price volatility and monetary policy to output volatility are 5.7159% and 32.4796%, respectively, or 2.5695% and 4.5606% less than before eliminating the interference, which indicate that monetary policy and its tight response to oil price shocks bear greater responsibility than the oil price shocks for the economic recession in China.

Suggested Citation

  • Yun-Shu Tang & Jian-Ling Jiao, 2016. "Should rising oil prices or monetary policy bear more responsibility for the economic recession? Empirical evidence from China," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 39(5), pages 305-322.
    • Handle: RePEc:ids:ijgeni:v:39:y:2016:i:5:p:305-322
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