Abstract:
Using a structural vector autoregressive model, this study investigates the
extent to which international oil price shocks have influenced the Chinese economy
over the period 1991–2014. Given China’s intensified macroeconomic activity and
its increasing demand for energy resources, we also examine the endogenous
response of international oil prices to economic conditions in the country. To that
end, we derive and empirically estimate a small open-economy New Keynesian
model for China and the rest of the world. Our results show that the Chinese
economy is relatively more sensitive to global economic conditions than to domestic
policy actions. Global productivity shocks appear to be the most important variable
causing Chinese macroeconomic activity through trade, where oil prices impact
aggregate demand negatively.
