THE EFFECTS OF ENERGY SUPPLY SHOCKS AND INTEREST RATE LIBERALIZATION IN CHINA

Yihao Xue (), Qiaoyu Liang () and Bing Tong
Additional contact information
Yihao Xue: School of Economics, Henan University, Ming Lun Street, Kaifeng, Henan, P. R. China
Qiaoyu Liang: School of Economics, Henan University, Ming Lun Street, Kaifeng, Henan, P. R. China
Bing Tong: ��CFDS, Institute of Finance and Securities, School of Economics, Henan University, Ming Lun Street, Kaifeng, Henan, P. R. China

The Singapore Economic Review (SER), 2025, vol. 70, issue 06, 1529-1563

Abstract: Based on a New Keynesian model with a transient interest rate peg and energy inputs in production, we examine the impact of China’s interest rate liberalization on the transmission of energy supply shocks. Theoretical analysis shows that in the face of negative supply shocks, output decreases less or even increases while inflation rises more under a fixed interest rate compared with a flexible interest rate. We construct the Divisia energy index based on Chinese data to test the model predictions. We identify energy supply shocks following the strategy of Kilian (2009) and obtain impulse responses using the local projection (LP) method proposed by Jordà (2005). The empirical results are generally consistent with our model predictions.

Keywords: Interest rate liberalization; energy supply shocks; divisia index; New Keynesian model (search for similar items in EconPapers)
JEL-codes: E31 E42 E43 E52 E58 Q43 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590823500224
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:70:y:2025:i:06:n:s0217590823500224

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590823500224

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().