The Impact of International Oil Price Fluctuation on China's Economy

Abstract

Oil is an important lifeline in our national economic development, and its price fluctuations also affect every field of the economy. With the rapid economic development, China's demand for oil has increased and the dependence on imported oil also on the increase. Therefore, the negative effect of high oil price on China's economy is growing up. In this paper, we apply the cointegration and error correction model to specifically measure the impact of oil price on the economy. The results show that there exist long-run equilibrium relationship between the oil price and the China's output, the consumer price index, the total amount of net exports and the monetary policy. Rising international oil price would cause the total amount of net exports and the real output to decline and the prices to ascend. Meanwhile, it would have a negative impact on the actual money supply.