Inflationary Effect of Oil-Price Shocks in an Imperfect Market: A Partial Transmission Input-output Analysis
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.
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2011-03
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Authors: | Wu, Libo ; Li, Jing ; Zhang, ZhongXiang |
Institutions: | Fondazione ENI Enrico Mattei (FEEM) |
Subject: | Oil-price Shocks | Price Transmission | Price Control | Input-output Analysis | Inflation | Industrial Structure | China | the United States |
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Extent: | application/pdf |
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Series: | |
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Number 2011.29 |
Classification: | Q43 - Energy and the Macroeconomy ; Q41 - Demand and Supply ; Q48 - Government Policy ; O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products ; O53 - Asia including Middle East ; P22 - Prices ; E31 - Price Level; Inflation; Deflation |
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Persistent link: https://www.econbiz.de/10009002686