An empirical analysis of the relationship between oil prices and the Chinese macro-economy

- We empirically analyze the relationship between oil prices and the Chinese macro-economy.
- We find output and interest rate respond significantly to oil price shocks.
- The response of output to oil price shocks is attributed to the influences of oil price shocks on exports.
- Oil prices can forecast China's exports in the periods shorter than about two years.

Using the quarterly data from the first quarter of 1996 to the fourth quarter of 2014, this paper studies the relationship between oil prices and the Chinese macro-economy. We find output and interest rate respond significantly to oil price shocks. Further analysis reveals that the positive response of output to oil price shocks is attributed to the influences of oil price shocks on exports. The oil price shocks have both longer and deeper effects on the exports of state-owned enterprises than on those of foreign investment enterprises. Moreover, the response of exports to oil price shocks is symmetric. Finally, oil prices are found to be useful for forecasting the China's exports in the periods shorter than about two years.