Energy shock, industrial transformation and macroeconomic fluctuations

Abstract

This paper analyzes the impact of coal shock and oil shock on China's macro economy by constructing SVAR model, and clarifies the impact mechanism of the two shocks and corresponding countermeasures by constructing a small open DSGE model. We find that: 1) The impact of exogenous coal impact mainly affects the total output by influencing thermal power generation. Due to the incomplete release of power price in China, under the impact of exogenous coal, the rise of thermal power generation cost will lead to the decline of thermal power generation, which will lead to the shortage of power supply for industrial production and the decline of output. 2) Exogenous oil shock mainly affects total output by influencing monetary policy. Different from coal, oil is widely used and its price rise has a significant impact on industrial product prices, which will lead to a certain degree of monetary policy contraction and total output decline. 3) According to the counterfactual analysis and welfare analysis, we find that the exogenous coal shock can be mitigated by reducing the external dependence of coal and industrial green transformation. At the same time, the exogenous oil shock can be mitigated by establishing strategic cooperation and industrial green transformation with oil-rich countries. This paper has certain policy implications for Chinese government departments to promote industrial green transformation and improve energy security.