Abstract
Movement in China's money supply is shown to drive the movement in world money supply over the last fifteen years. Structural shocks to G3 (U.S., Eurozone and Japan) real M2 and to China's real M2 are both large over 1996:1–2011:12. The cumulative impact of real G3 M2 shocks on real oil prices is small and statistically insignificant. In contrast, the cumulative impact of China's real M2 on the real price of crude oil is large and statistically significant. Following a sharp fall in real oil price in the last half of 2008, the cumulative impact of China's real M2 on the real price of crude oil is particularly substantial in the recovery of oil price during 2009 from a low of $41.68 for January 2009. The analysis sheds light on the causes of movement in oil prices over the last fifteen years and in assessing the relative importance of China in the upsurge of the real price of crude oil.
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