The Effects of Different Types of Oil Price Shocks on Industrial PPI: Evidence from 36 Sub-industries in China

Abstract

ABSTRACT Based on a structural vector autoregression (SVAR) model, we investigate the impacts of different types of oil price shocks on industrial producer price index (PPI) in China for the period from 1996:10 to 2017:6. The results show that an increase in oil prices caused by oil supply shocks has negative impacts on China’s industrial PPI, while industrial PPI and an increase in oil prices caused by aggregate demand and oil-specific demand shocks move in the same direction. There are significant inter-industry differences in the effect of oil price shocks on industrial PPI. Energy intensity is an important factor affecting the inter-industry differences in oil supply and oil-specific demand shocks, while the inter-industry differences in aggregate demand shocks are mainly affected by export dependence. A variance decomposition analysis reveals that the increase in oil prices driven by aggregate demand shocks has the most important influence on the PPIs in most sub-industries.