Oil supply news shock and Chinese economy

This paper studies the effects of the oil supply news shock on the Chinese economy using a novel approach as newly proposed in Känzig (2021). Specifically, we use the changes of West Texas Intermediate oil futures prices around OPEC meeting announcements as a high-frequency instrument in a structural VAR model to identify the oil supply news shock. Our results suggest that the Chinese domestic economy is not affected significantly by the shock in terms of industrial production and CPI, two important macroeconomic indicators. However, due to the global features of the international trade, China's exchange rate and trade balance respond to the shock. •The paper uses a novel approach to study the oil supply shock on the Chinese economy by using the data from 1999M1 to 2020M12.•The oil supply shock does not affect the Chinese domestic economy significantly.•China's exchange rate and trade balance are affected by oil supply shock.