The Transmission Mechanisms and Impacts of Oil Price Fluctuations: Evidence from DSGE Model

This paper constructs an open economy dynamic stochastic general equilibrium (DSGE) model with oil to investigate the transmission mechanism and impact effects of price fluctuations driven by different factors on China’s macroeconomy using quarterly data from 1996 2019. The results show that international crude supply-driven decline promotes positive output growth in short run through cost effect supply channel, production regulation will dampen incentive invest new energy sector long run. Domestic economic development demand-driven increases act demand driving prices fluctuate same direction, generating a negative real balance interest rate channel. oil-specific foreign nominal shocks is transmitted exchange triggering imported inflation, lower aggregate demand, output. Different sources have mechanisms thus differential effects. For this reason, based root causes fluctuations, policy recommendations deal situation are proposed at level, level.