Relationship between Chinese and International Crude Oil Prices: A VEC-TARCH Approach

Changming Song and Chongguang Li

Mathematical Problems in Engineering, 2015, vol. 2015, 1-10

Abstract:

Many studies focus on the impact of international crude oil price volatility on various economic variables in China with a hypothesis that international crude oil price affected Chinese crude oil price first and then other economic variables. However, there has been little research to explore whether or not international and Chinese oil market are integrated. This study aims to investigate the relationship between Chinese and international crude oil prices by VAR and VEC-TARCH models. It was found that the two crude oil markets have been integrated gradually. But the impact of external shocks on the Chinese crude oil market was stronger and the Chinese crude oil price was sensitive to changes in international crude oil price, implying that the centrally controlled oil market in China is less capable of coping with external risk. In addition, the volatility of both Chinese and international crude oil prices was mainly transmitted by prior fluctuation forecast and the impact of external shocks was limited, demonstrating that in both cases volatility would disappear rather slowly. Furthermore, Chinese and international crude oil markets have established a stable relationship. When the direction of external shocks on the two variables’ respective stochastic term was consistent, the impact on the two variables’ joint volatility was aggravated and vice versa.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:842406

DOI: 10.1155/2015/842406

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