Inflationary Effect of Oil-Price Shocks in an Imperfect Market: A Partial Transmission Input-output Analysis

Libo Wu (), Jing Li and ZhongXiang Zhang
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Jing Li: Department of World Economy, School of Economics, Fudan University

No 2011.29, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper aims to examine the impacts of oil-price shocks on China’s price levels. 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 U.S., we separate the impact of price control from those of other factors leading to China’s price stickiness under oil-price shocks. The results show a sharp contrast between China and the U.S., 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 Transmission; Price Control; Input-output Analysis; Inflation; Industrial Structure; China; the United States (search for similar items in EconPapers)
JEL-codes: E31 O13 O53 P22 Q41 Q43 Q48 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-ene, nep-hme and nep-tra
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Inflationary effect of oil-price shocks in an imperfect market: A partial transmission input–output analysis (2013)
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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