Inflationary effect of oil-price shocks in an imperfect market: a partial transmission input-output analysis

Libo Wu, Jing Li and ZhongXiang Zhang ()
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Libo Wu: Center for Energy Economics ans Strategy Studies, Fudan University
Jing Li: Department of World Economy, School of Economics, Fudan University

No 115, Economics Study Area Working Papers from East-West Center, Economics Study Area

Abstract: This paper aims to examine the impacts of oil-price shocks on China’s price levels. To that end, we develop a partial transmission input-output model that captures the uniqueness of the Chinese market. We hypothesize and simulate price control, market factors and technology substitution - the three main factors that restrict the functioning of a price pass-through mechanism during oil-price shocks. Using the models of both China and the U.S., we separate the impact of price control from those of other factors leading to China’s price stickiness under oil-price shocks. The results show a sharp contrast between China and the U.S., with price control in China significantly preventing oil-price shocks from spreading into its domestic inflation, especially in the short term. However, in order to strengthen the economy’s resilience to oil-price shocks, the paper suggests a gradual relaxing of price control in China.

JEL-codes: Q43 Q41 Q48 O13 O53 P22 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ene, nep-hme, nep-mon and nep-tra
Date: 2011-03
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Working Paper: Inflationary Effect of Oil-Price Shocks in an Imperfect Market: A Partial Transmission Input-output Analysis (2011)
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