Uncertainty Shocks to Oil Prices and Firm Investment
YU Jian, ZHENG Wenping, CHENG Dong
School of Economics, Central University of Finance andEconomics; School of Economics, Renmin University of China; Department of Economics, Vanderbilt University
Abstract:
We investigate the response of Chinese investment to oil price uncertainty shocks, using quarterly macro data spanning the period 2000-2015 and annual micro survey data over the period 1998-2007. The macro structural VAR analysis reveals that uncertainty shocks to oil prices inhibit aggregate investment in the short run and account for around 12% fluctuations in fixed asset investment. In the micro level, we initiate a new computation method for firm investment using heterogeneous firm-level depreciation rate. The panel-data VAR evidence shows that uncertainty shocks to oil prices hinder firm investment in the short run for private and foreign firms, yet not significantly affecting state-and collectively-owned firms. We also find that the results are more pronounced when we allow for more heterogeneity in depreciation rate to compute firm investment. Further exploration suggests a more policy-oriented feature for investment of state-and collectively-owned firms, which explains its unresponsiveness to oil price uncertainty shocks.
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