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

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Title: Inflationary effect of oil-price shocks in an imperfect market : a partial transmission input-output analysis
Authors: Wu, Libo
Li, Jing
Zhang, ZhongXiang
LC Subject Headings: Petroleum products - Prices - China - Econometric models
Petroleum industry and trade - Government policy - Econometric models
Inflation (Finance) - China
Monetary policy - China
Issue Date: Mar 2011
Publisher: Honolulu, HI : East-West Center
Series/Report no.: East-West Center working papers. Economics series ; no.115
Abstract: This paper aims to examine the impacts of oil-price shocks on China's price levels. To that end, a partial transmission input-output model was developed to capture the uniqueness of the Chinese market. 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--were hypothesized and simulated. Using the models of both China and the U.S., the impact of price control was separated 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.
Description: For more about the East-West Center, see http://www.eastwestcenter.org/
Pages/Duration: 41 p.
URI/DOI: http://hdl.handle.net/10125/19974
Appears in Collections:Economics [Working Papers]



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