Abstract
This paper is aimed at investigating and understanding the relationship between China’s macro-economy and oil price from a new perspective—the international trade perspective. We find strong evidence to suggest that the increase of China’s price level, resulting from oil price shocks, is statistically less than that of its main trade partners’. This helps us to understand the confused empirical results estimated within the SVAR framework. More specifically, SVAR results suggest that China’s output level is positively correlated with the oil price. Positive correlation between China’s output and oil price shocks presumably results from the drop in China’s relative price induced by oil price shocks, which is inclined to stimulate China’s goods and service exports.
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