Abstract
Based on monthly data and VAR models from March 2002 to December 2015, this paper studies the interaction between international commodity price and China’s demand. The results show that the impact of China’s demand can to a certain extent guide the fluctuation of commodity prices, while this impact is insignificant. Over time, the shock of commodity prices has exerted an increasingly effect on the changes in China’s demand. In the context of the drastic drop of commodity prices and the slowdown of international economic growth, China should pay close attention to other factors that affect the volatility of commodity prices, such as speculative investment factors, the monetary policy of the world’s major economies and take full advantage of today’s low commodity prices and take muscular internationalization approach to buying important commodities cheaply for eventual global market improvement and selling on the macroeconomic trendlines.
Highlights
After the financial crisis, the international commodity price volatility has gone through roughly three phases: All the way up in 2009-2011, the slowing down in 2011-2014 and the slump in 2014-2015
Based on the relevant theoretical analysis and the monthly data from March 2002 to December 2015, this paper uses CRB index and the growth rate of industrial added value respectively as a measure of international commodity price and China’s demand and constructs a VAR model to analyze interaction between the international commodity price and China’s demand; the main conclusions are as follows: First, the results of impulse response analysis show that the impact from the growth rate of industrial added value will lead to the positive response of commodity prices, indicating that the impact of industrial output growth can guide the fluctuation of international commodity price to a certain extent, which is in line with the theory of traditional commodity economic cycle
In the face of the impact of the fluctuation of international commodity price, the growth rate of industrial added value shows a significant positive response at the beginning, and it shows a significant negative response, indicating that the impact of the shock from international commodity price on the growth rate of industrial added value will change over time: In the long run, the rising international commodity price will to some extent hinder the growth rate of China’s industrial output; while in the short term, as the international commodity price rise, the growth of China’s industrial output will accelerate
Summary
The international commodity price volatility has gone through roughly three phases (as shown in Figure 1): All the way up in 2009-2011, the slowing down in 2011-2014 and the slump in 2014-2015. The volatility of the international commodity price has brought many uncertainties to the economic development of all countries. The fluctuations of international commodity price and its causes have become the hot topics of academia. This paper focuses on the Chinese factors in commodity prices: We use the CRB index and the growth rate of industrial output respectively as the indicators of commodity prices and Chinese demand, and based on the monthly data from. March 2002 to December 2015, we construct a VAR model to analyze the interaction between international commodity price and Chinese demand
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