MEASURING THE EFFECTS OF OIL PRICES ON CHINA'S ECONOMY: A FACTOR‐AUGMENTED VECTOR AUTOREGRESSIVE APPROACH

François Lescaroux () and Valérie Mignon ()

Pacific Economic Review, 2009, vol. 14, issue 3, 410-425

Abstract: Abstract. The aim of this paper is to investigate the impacts of oil prices on the Chinese economy. To this end, we rely on the factor‐augmented vector autoregressive methodology, which allows us to evaluate the response of various macroeconomic variables to an oil price shock. Our results suggest that an oil price shock leads to: (i) a contemporaneous increase in consumer and producer price indexes, inducing a rise in interest rates; (ii) a delayed negative impact on GDP, investment and consumption; and (iii) a postponed increase in coal and power prices.

Date: 2009
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