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In this seminar, Bao examines the effects of world energy price shocks on China’s macroeconomy. He begins by showing that the common use of oil prices as a proxy for more general energy price dynamics in studies on the US economy, does not extrapolate to the case of China. Having established this fact, Bao proposes a new index of quarterly energy prices which accurately reflects both the structure of China’s total energy expenditure shares on primary commodities, along with intertemporal fluctuations in international energy prices. The methodology then employs a sufficiently rich set of time varying BVARs, identified by a new set of agnostic sign restrictions, to provide evidence that world energy price shocks have of significant time varying effects on China’s macroeconomy. There are two main results found by the author. First, positive energy price shocks have consistently generated economic stagflation over the past two decades. Interestingly, while the inflation response of a 1 per cent energy price increase is consistently found to be 3.5 per cent, the real GDP responses have been decreasing over the sample period. Next, in contrast to the literature on the US economy, monetary policy is found to be focused on stimulating real GDP growth as compared to inflation stabilization. These results are shown to be robust to various data sources, thus strengthening the author’s conclusion that energy price shocks have significant, time varying, effects on China’s macroeconomy.
Bao Nguyen is a PhD scholar at the Crawford School of Public Policy. His current research is applied macroeconomics with a focus on the relationship between commodity price dynamics and macroeconomic performances of various economies (e.g. Australia and China).
The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.