1. Inflationary effect of oil-price shocks in an imperfect market: A partial transmission input–output analysis
- Author
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Wu, Libo, Li, Jing, and Zhang, ZhongXiang
- Subjects
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PETROLEUM industry , *PETROLEUM product sales & prices , *INPUT-output analysis , *PRICE regulation , *ECONOMIC policy , *MONEY supply , *MATHEMATICAL models - Abstract
Abstract: This paper aims to examine the impacts of sectoral price control policies on oil price pass-through into China''s aggregate price level. To that end, we develop a partial transmission input–output model that captures the uniqueness of the Chinese market. We hypothesize and simulate price control, market factors and technology substitution – the three main factors that restrict the functioning of a price pass-through mechanism during oil-price shocks. Using the models of both China and the US, we separate the impact of price control from that of other factors leading to China''s price stickiness under oil-price shocks. The results show a sharp contrast between China and the US, with price control in China significantly preventing oil-price shocks from spreading into its domestic inflation, especially in the short term. However, in order to strengthen the economy''s resilience to oil-price shocks, the paper suggests a gradual relaxing of price control in China. [Copyright &y& Elsevier]
- Published
- 2013
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