In this paper, we develop a coal–electricity vertical price transmission model for analyzing the relationships between power supply, coal price, and economic growth. We empirically test the model using data from 1996 to 2011. The results suggest that there is a long-run equilibrium relationship between power supply, coal price, and economic growth. Power shortages represent departures from this long-run equilibrium relationship. Applying a bootstrapped Granger causality test, we find unidirectional Granger causality from power supply to economic growth and from coal price to power supply, and bidirectional Granger causality between coal price and economic growth. We also discuss policy implications suggested by these results, including monitoring coal price fluctuations, perfecting the coal–electricity price linking system, and breaking the administrative monopoly in China’s electricity market.