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

Libo Wu (), Jing Li and ZhongXiang Zhang

Journal of Policy Modeling, 2013, vol. 35, issue 2, 354-369

Abstract: This paper aims to examine the impacts of sectoral price control policies on oil price pass-through into China's aggregate price level. 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 US, we separate the impact of price control from that of other factors leading to China's price stickiness under oil-price shocks. The results show a sharp contrast between China and the US, 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.

Keywords: Oil-price shocks; Price pass-through; Price control; Input–output analysis; Inflation; China (search for similar items in EconPapers)
JEL-codes: E31 O13 O53 P22 Q41 Q43 Q48 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Inflationary Effect of Oil-Price Shocks in an Imperfect Market: A Partial Transmission Input-output Analysis (2011)
Working Paper: Inflationary effect of oil-price shocks in an imperfect market: a partial transmission input-output analysis (2011)
Working Paper: Inflationary Effect of Oil-Price Shocks in an Imperfect Market: A Partial Transmission Input-output Analysis (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:35:y:2013:i:2:p:354-369

DOI: 10.1016/j.jpolmod.2012.01.008

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