Shocks Of Time-varying Global Oil Price Jumps On China's Strategic Commodities And Its Transmission Mechanism

Along with its fast industrialization process,China's crude oil consumption and its external dependent rate are both arising dramatically.Since 2012 and 2013,China has been the largest oil consumption and importing economy for years.Meanwhile,under the shocks of extreme events,huge fluctuation of global oil price has become more frequently.Daily wawes over 5%has account for nearly one hundred times,and extreme fluctuations over 10%are also not unconmom.However,as it is the critical period of economic restructuring and traditional industry upgrading,the Chinese economy is fetured by high energy consumption.Statistics show that its one-unit output energy consumption is as high as 35.6 tons standard coal per thousand dollars,which is 2.07 times of the average of developed countries over the same period.As indispensable necessities for the human society,strategic commodities play an increasingly prominent role in supporting the national economy.However,because of high energy consumption and low energy efficiency,China's excessive dependence on imported oil made its commodity prices sensitive to global oil price shocks.Along with the slowing of macroeconomic growth,and the increasing risks of real estate and stocks,financial attribute of commodities has become more apparent.Considering the natural sensitivity of financial behavior to various market risks,gobal oil price jumps is bound to exert a far-reaching influence on China's strategic commodity markets.Therefore,based on our investigation of global oil price jumps,we successively studied its shocks on China's aggragate commodity market,strategic categories and typical commodities,while its time-lags,signs,scales were also carefully discussed.Further,we theoretically analysised the transmission mechanism of those shocks from the perspective of real economy and financial behavior.Main findings are as follows:Firstly,global oil price is indeed characterized by time-varying jumps.On the one hand,even after removing the expected price changes and volatility clustering effects,oil price jumps are also signifant,indicating that discrete risk movement does exist in the crude oil market.On the other hand,both its intensity and size are characterised by time-varying dynamics.The former is not only autoregressive but also significantly affected overnight events,while the later is mainly reflected by the significant positive impacts of unexpected oil price upwrads of the previous period.Secondly,the impacts of global oil price jumps are not only significant,but also characterized by time-lag,sign diversity and size differences.Time-lag is reflected by the impacts of last jumps,and the persistence caused by the autoregression of returns and volatility.Sign diversity exist in the different impacts of current and last jumps,and the opposite effects of ordinary and extreme jumps.Size differences is reflected by the higher(lower)risk(return)amplification(inhibition)effects of current jumps,as well as the greater positive(negative)risk(return)impacts of extreme jumps.Thirdly,the shocks of oil price jumps will vary according to market level,product categories and specific commodities.Although current and last jumps have significant negative and positive impacts on the aggragate market returns,other categories and specific commodities may not response significantly except energy and fuel,industrial products and rebar steels.Comparing to the aggragate market and other categories and typical products,the reaction of rebar steel and wheat risks to current and last jump are weaker.Although agricultural and non-ferrous metals are very sensitive to extreme jumps,wheat and aluminium may not be affected by strong or weak jumps.Lastly,the transmission mechanism of jump shocks is reflected in both economic and financial aspects.The economic shocks come from extreme cost oscillations and mainly contains the linkage of cost and price,inventory changes,and the pessimistic market expectation.The financial impact is rooted in financial behavior,and mainly involves withdrawal of funds from commodities,the transfer of global funds from oil to commodities.However,due to the differences of oil dependence,financialization degree,regulatory policies,and market rules,the relative strength of these shocks also varies according to market levels,product categories and typical commodities.Based on the above conclusions,our suggestions are as follows:Improving crude oil reserves and the new energy industry,thus to reduce our excessive dependence on imported oil.Perfecting the domestic oil futures to enhancing China's pricing power on the global oil market.Upgrading our industrial structure,and promoting the diversification of energy consumption to reduce China's high dependence on fossil fuels.Strengthening market supervision and the risk warning mechanism of domestic commodities,thus to increase the rationality of investment decisions.This research not only provided a comprehensive study of time-varying oil price jumps,but also investigated its shocks on the risks stratigeic commodities.Moreover,the transmission mechanism of the skocks was also explrod,and both the empirical methods of oil price jumps and its shocks were also revised.Based on the conclusions of this organic combination of empirical study and theoretical analysis,solid practical and theoretical basis could be provided to policy makers and market investors.