Abstract
Balancing the oil pass-through to consumer and producer prices is crucial for policymakers. This study aimed to advance associated thinking by examining how consumer and producer prices in China related to changes in global oil prices from 2006 to 2018. First we investigated the pass-through of oil spot prices to consumer prices as indicated by the consumer price index (CPI) and means of consumption price index (MCPI), and to producer prices as indicated by the producer price index (PPI) and means of production price index (MPPI), with a monetary policy in China. Furthermore, this study explored the non-linear and mediating effects of financial markets and government debt on linkages between oil prices and consumer/producer prices based on non-linear framework and causal steps approach, respectively. Our findings indicated some key points; for example, the pass-through of oil prices with a monetary policy in China shed light on a benchmark role in global oil markets. Additionally, the non-linear effect of oil prices on consumer/producer prices varied across the Brent and West Texas Intermediate (WTI) crude oil markets. Additionally, the mediating effect of government debt reflected the effectiveness in balancing the relationship between oil prices and producer prices. Government debt explained the -0.091 transition between the Brent oil price and the PPI and could explain the -0.095 transition between the Brent oil price and the MPPI, whereas for the transition due to financial markets were -0.064 and -0.080, respectively. These outcomes have important implications for stabilizing price levels in countries.
Highlights
What is the extent of oil price pass-through in relation to consumer and producer prices within Chinese monetary policy? This question sheds light on the crucial role oil price plays in macroeconomic instability (Hamilton, 1983; Kim, 2012; Bloch et al, 2015; Ratti and Vespignani, 2016; Sodeyfi and Katircioglu, 2016; Kang et al, 2017; Shi and Sun, 2017; Ji et al, 2019c)
The evaluation of oil price shocks with a Chinese monetary policy was similar to the results in section Oil Price Pass-Through Without a Monetary Policy in China; for example, the results suggested that the pass-through of the West Texas Intermediate (WTI) oil price to the consumer price index (CPI) was larger than for the Brent oil price
The pass-through of oil prices to consumer and producer prices could reflect the diverse dependence on oil across global oil markets
Summary
What is the extent of oil price pass-through in relation to consumer and producer prices within Chinese monetary policy? This question sheds light on the crucial role oil price plays in macroeconomic instability (Hamilton, 1983; Kim, 2012; Bloch et al, 2015; Ratti and Vespignani, 2016; Sodeyfi and Katircioglu, 2016; Kang et al, 2017; Shi and Sun, 2017; Ji et al, 2019c). Lim and Sek (2017) concluded that the impact of oil prices may vary across oil exporting and importing economies, because of oil dependency factors; otherwise, oil prices exert negative effects on the CPI in organization for economic cooperation and development (OECD) countries (Katircioglu et al, 2015). This occurs because studies ignore the crucial effect of monetary policy on consumer and producer prices. The first objective of this research was to test the pass-through of oil prices, especially the Brent and WTI oil prices, in relation to consumer/producer prices within Chinese monetary policy
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