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

USAEE-IAEE Working Paper No. 11-076

43 Pages Posted: 25 Apr 2011 Last revised: 9 May 2011

See all articles by Libo Wu

Libo Wu

Fudan University - School of Economics

Jing Li

Fudan University - School of Economics

ZhongXiang Zhang

Tianjin University - Ma Yinchu School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 24, 2011

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

JEL Classification: Q43, Q41, Q48, O13, O53, P22, E31

Suggested Citation

Wu, Libo and Li, Jing and Zhang, ZhongXiang, Inflationary Effect of Oil-Price Shocks in an Imperfect Market: A Partial Transmission Input-Output Analysis (April 24, 2011). USAEE-IAEE Working Paper No. 11-076. Available at SSRN: https://ssrn.com/abstract=1821703 or http://dx.doi.org/10.2139/ssrn.1821703

Libo Wu

Fudan University - School of Economics ( email )

Shanghai
China

Jing Li

Fudan University - School of Economics

600 GuoQuan Road
Shanghai, 200433
China

ZhongXiang Zhang (Contact Author)

Tianjin University - Ma Yinchu School of Economics ( email )

92 Weijin Road, Nankai District
Tianjin 300072
China
+86 22 87370560 (Phone)

HOME PAGE: http://ideas.repec.org/f/pzh243.html

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