The time-frequency evolution of multidimensional relations between global oil prices and China's general price level

Abstract

The multidimensional relations of asymmetry, correlation, and lead-lag between global oil prices and the general price level of an economy are unstable over time. Policy makers and investors need comprehensive information about these dynamic relations at different time-frequency domains rather than their long-term relations. This study investigates the multiscale evolution of multidimensional relations between oil prices and China's price indices. First, wavelet tools were applied to analyse wavelet coherency and lead-lag relationships between oil prices and price indices. Second, a multiscale multidimensional relation network model (MRNM) is constructed to unveil how the multidimensional relations evolve across different time-frequency domains. The significant dependencies show the changes from strong dependence located in the short term before 2004 to those located in the medium and long terms from 2004 to 2014. World oil prices can be a reference for China's CPI in the medium and long terms and PPI in the long term. There is an asymmetry in the key patterns that the oil price increase dominating but the oil price decrease missing. Policy makers should pay attention to the situation in which world oil prices increase and their changes leading.