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Impacts of exchange rate volatility and international oil price shock on China's regional economy: A dynamic CGE analysis

Baomin Dong, Xili Ma, Ningjing Wang and Weixian Wei

Energy Economics, 2020, vol. 86, issue C

Abstract: A multi-regional dynamic computable general equilibrium model is constructed in this paper to explore the macroeconomic effects of international oil price shocks and RMB exchange rate changes on China. The results show that (1) in terms of regional development differences, the decrease in international oil prices and depreciation of RMB are both conducive to economic growth, although the impact of RMB devaluation is more obvious. Increases in international oil prices will further widen the output gap between the rich and the poor regions, whereas oil price decreases and RMB devaluation will narrow the regional development differences. (2) In terms of employment, the depreciation of the exchange rate and the decline in international oil prices will help increase the employment rate in most regions, but oil price hikes will be most beneficial for improving oil industry employment in the northeast. (3) The impact of oil price volatility is asymmetric. Compared with rising oil prices, falling oil prices have significantly greater effects on GDP, industrial output, employment and other aspects. Furthermore, the impacts of exchange rate fluctuations and oil price changes on the regional economy exhibit a time lag.

Keywords: International oil price; RMB exchange rate; China regional economy; Dynamic regional CGE model (search for similar items in EconPapers)
JEL-codes: C67 E10 E44 P48 Q43 Q47 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.eneco.2017.09.014

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