Research On The Relation Between Energy Price And Commodity Price Based On Monetary Perspective

As one of the most important production material, energy has been playing an important role in our economic development. Its price fluctuation will affect the production cost of downstream industries directly, which will therefore influence the consumer price index, producer price index as well a s the general price level. As the most sensitive singal in market economy, price can be affected by the interation of many factors. In C hina, the most significant factor is mone y supply. When prices go up and inflation arises, central bank will achieve the goal of price stability through monetary policies. Since energy satisfies all properties of commodity, the price will be inevitably affected by money supply. However, due to the special role in our economy, energy prices will influence price level and money supply in turn. Based on the statement above, from the perspective of money, this thesis will focus on the interaction among monetary factors, energy prices and price level.In this thesis, samples are chosen from monthly data of money supply, energy prices and price level from 2000 to 2015. Based on the analysis of their fluctuation trends, the changing characters and potential relevance among those three factors are demonstrated. Meanwhile, the internal interaction mechanism and price conduction path among those three are elaborated systematically from various perspectives. Based on the theoretical analysis framework, using Granger causality test, cointegration test as well as impulse response function to measure the relationship between energy prices and the general price level, at the same time, we measure the direct and indirect effects of the original system and system with money supply adjusted term added through multiple linear regression and ridge regression, also testing asymmetry effect of energy prices to price level according to different currencies. In the end, in the light of the high dependence on foreign energy, exchange rate change will have an impact on our monetary policies, thus analyzing how oil prices and RMB nominal exchange rate affects our price level through money supplies in terms of external shocks.Combining theory with empirical analysis, we can draw conclusions as follows. Firstly, inversion phenomenon exists between PPI and CPI without considering monetary factors; time- lag effect arises among the influences of fluctuation of energy prices on price level. Time lag during the process of price conduction results in the significant time- lag effect given the initial price. Secondly, money supply, energy prices and price level are highly correlated and a long term stable relationship holds when money supply is introduced from the money aspect; money supply has a significant impact on energy prices only after 10 lagged period. China’s price level is mainly affected by money supply and also has a reverse amplification effect. Thirdly, there is a significant asymmetry impact of energy prices on price level in terms of different money changes. Finally, the influence of money supply on PPI is limited when we consider external shocks; howe ver, because of the effect of money multiplier, the influence on CPI will be enlarged. Additionally, imported inflation will enlarge the impact on price level in China on the whole. The price level will be suppressed to some extent if RMB exchange rate goes up, but this will result in expanding money supply by central bank passively, which makes the impact of higher exchange rate on higher price level is much larger than that on suppressing price level.