Abstract

Impact of international crude oil price volatility on China's macro-economy

Author(s): Zhiguo Li

In recent years, the great volatility of international oil prices has caused a serious impact on the smooth running China's economy. After the opening up of crude oil wholesale and retail markets, China's oil prices and world oil prices are more closely linked to each others. This paper aims at exploring the different influences on China's macro-economy after the opening up of crude oil wholesale and retail markets. To that end, a structured vector auto regression (SVAR) model was established. The results show that: the opening up of the crude wholesale and retail market accelerates the conduction of the international crude oil price volatility on China's economy; world oil price rise leads to a larger domestic output decline and this effect has a strong continuity; tightening monetary policy implemented by the government, such as reducing the money supply or raising interest rates, to some extent alleviates the pressure of inflation, but there is still the risk of excessive imposing. With the increasing dependence on foreign oil, the government must take measures to cope with the impact of international crude oil prices on our economy.