Time-varying effects of international nonferrous metal price shocks on China’s industrial economy

Abstract

This study aims to investigate the relationship between international nonferrous metal prices and industrial economic variables. To this end, we propose a new extended time-varying parameter structural vector autoregression with stochastic volatility (TVP-SVAR-SV) model to examine the time-varying characteristics and structural changes of shock effects for the period Q1 2001 to Q1 2018. The results show that the time-varying effects of international nonferrous metal price shocks on China’s industrial economy are different at different time horizons, and the impacts are the most significant in the short term. Additionally, the negative effects of international nonferrous metal price shocks on industrial added value has significant lag effects, which appear in medium and long-term, while the shock effects on PPI and industrial employment are positive. Variance decomposition analysis shows that international nonferrous metal price shocks are an important driving force for industrial economic cycle fluctuations, second only to neutral technology shocks. The explanatory power of international nonferrous metal price shocks for the fluctuations in China’s industrial added value, PPI, and employment significantly increases after the international financial crisis.