Oil Price Shocks, Durables Consumption, and China’s Real Business Cycle
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| Title | Oil Price Shocks, Durables Consumption, and China’s Real Business Cycle
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| Author | Wang Yunqing and Liu Qianwen |
| Organization | School of International Finance, Shanghai Finance University, and Financial Research Center, Fudan University, Financial Research Center, Fudan University |
| Email | wodewyq@sina.com；thegreatestpb@163.com |
| Key Words | Oil Price Shocks; Durables Consumption; Real Business Cycle |
| Abstract | With rapid economic growth of China accompanied by huge amount of oil use, the fluctuations in oil prices in world market would evidently have negative impact on the economic stability. Considering that oil price shocks have become a key source of exogenous uncertainties for China’s economy as well as the fact that strong relationships between oil and durables, this paper develops a RBC model with oil factor and durables to study the features of China’s real business cycle and transmission mechanism of the shock as well, while making the corresponding empirical applications based on China’s quarterly macroeconomics data. We conclude that (1) introducing durable goods and nondurables being component part of consumption plays an important role in accounting for the features of China’s real business cycle. In particular, it is evident that the model operates consumption volatility and weakly positive correlation linked to GDP to the values close to the observed one; (2) oil price shocks have mainly impacts on consumption volatility, but attribute an even smaller proportion of output, investment, and employment. Moreover, productivity shocks continue to be the primary force behind the fluctuations in the above three variables; (3) in our economy we show that the transmission mechanism of the oil price shocks are determined by both principles including intra-temporal income effects and inter-temporal effects of portfolio rebalancing between durables and capital. |
| Serial Number | WP880 |
| Time | 2015-05-22 |
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