We investigate the relationship between China's macroeconomic performance and the world oil market over the past two decades. Unlike existing studies, we allow for possible regime changes by utilizing a class of Markov-switching vector autoregression (MS-VAR) models. The model identifies key regime changes in the structural shocks when the oil market experiences low and high volatility. We find that demand shocks from China and the rest of the world have a larger impact on the real price of crude oil during periods of high volatility. Supply shocks, in contrast, have a large effect on the price in the low volatility regime. A similar state-dependent phenomenon is observed for the impact of oil price shocks on China economic activity, however the size of these responses is relatively small. Thus, despite China being a major player in international oil markets, we conclude that oil market shocks tend to have little impact on China's real GDP growth.

Item Type:	Refereed Article
Keywords:	China, oil prices, MSVAR, Markov-switching VARs, sign restrictions
Research Division:	Economics
Research Group:	Applied economics
Research Field:	Macroeconomics (incl. monetary and fiscal theory)
Objective Division:	Economic Framework
Objective Group:	Macroeconomics
Objective Field:	Economic growth
UTAS Author:	Nguyen, BH (Dr Bao Nguyen)
ID Code:	147485
Year Published:	2021
Web of Science® Times Cited:	2
Deposited By:	Economics and Finance
Deposited On:	2021-11-04
Last Modified:	2022-01-17
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