Oil price shocks, economic policy uncertainty and China’s producer price index: Evidence from quantile regression analysis

Abstract

Oil price shocks have a significant impact on various sectors of the national economy and, together with the accompanying economic policy uncertainty, cause price fluctuations in different industries. Relying on the monthly data from February 2006 to June 2018, we explore the effects of oil price shocks and economic policy uncertainty on China’s producer price index (PPI) by employing the quantile regression model. The study reveals that oil price shocks have significantly positive impacts on China’s PPI under various quantiles, and the impacts depend on negative oil price shocks rather than positive oil price shocks, indicating the asymmetric effects of oil price shocks. Economic policy uncertainty has significantly negative effects on China’s PPI at the low quantiles, while it exerts significantly positive effects on China’s PPI at the high quantiles. The four types of economic policy uncertainty have different impacts on China’s PPI, and the impacts of fiscal policy uncertainty and trade policy uncertainty are relatively larger, indicating the heterogeneous impacts of different types of economic policy uncertainty. In addition, the effects of oil price shocks and economic policy uncertainty on classified PPI are diverse.