DefinePK

Abstract

Using a structural vector autoregressive model,this studyinvestigatesthe extent to which international oil price shocks have influencedthe Chinese economyoverthe period 1991–2014. Given China’sintensified macroeconomic activity and its increasing demand for energy resources, we also examine the endogenous response of international oil prices to economic conditionsin the country. To that end, wederive and empirically estimate a small open-economy New Keynesian model for China and the rest of the world. Our results show that the Chinese economy is relatively more sensitive to global economic conditions than to domestic policy actions. Global productivity shocksappear to be the most important variable causing Chinese macroeconomic activity through trade,where oil prices impactaggregate demand negatively.