Impact of COVID-19 on energy prices and main macroeconomic indicators—evidence from China's energy market

Yilin Wu; Shiyu Ma; Yilin Wu; Shiyu Ma

doi:10.3934/GF.2021019

Green Finance

2021, Volume 3, Issue 4: 383-402. doi: 10.3934/GF.2021019

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Research article

Impact of COVID-19 on energy prices and main macroeconomic indicators—evidence from China's energy market

Yilin Wu ^1,2,
Shiyu Ma ^{2
,
,}

1.
Center for Applied Statistics, School of Statistics, Renmin University of China, Beijing, China
2.
School of Statistics, Renmin University of China, Beijing, China

Received: 29 July 2021 Accepted: 14 September 2021 Published: 17 September 2021
JEL Codes: C32, C51, E31, Q43

With the COVID-19 pandemic sweeping the world, the development of China's energy industry has been hampered. Although previous studies have shown the global influence of COVID-19 on energy prices and macroeconomic indicators, very few of them examined the impact on China independently, considering the special role of China in this pandemic and economy. In this study, we investigate the impact of the pandemic on several major China energy prices using the ARIMA-GARCH model. Combined with the Value-at-Risk (VaR) theory, we further explore the market risk, which indicates an increase in the tail risk of energy price volatility and the dramatic turbulence in energy markets. In addition, a Vector Autoregressive (VAR) model is developed to analyze how the main macroeconomic indicators are affected when energy prices fluctuate. According to the model results, energy price fluctuations caused by the COVID-19 have a negative impact on economic growth and inflation, with a higher contribution to the latter changes. Based on the modeling analysis results, this paper makes constructive suggestions on how to stabilize energy prices and recover the economic development in the context of the COVID-19 pandemic.
- COVID-19 pandemic,
- China energy industry,
- energy price volatility,
- main macroeconomic indicators,
- ARIMA-GARCH model,
- Value-at-Risk,
- VAR model
Citation: Yilin Wu, Shiyu Ma. Impact of COVID-19 on energy prices and main macroeconomic indicators—evidence from China's energy market[J]. Green Finance, 2021, 3(4): 383-402. doi: 10.3934/GF.2021019

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Abstract

With the COVID-19 pandemic sweeping the world, the development of China's energy industry has been hampered. Although previous studies have shown the global influence of COVID-19 on energy prices and macroeconomic indicators, very few of them examined the impact on China independently, considering the special role of China in this pandemic and economy. In this study, we investigate the impact of the pandemic on several major China energy prices using the ARIMA-GARCH model. Combined with the Value-at-Risk (VaR) theory, we further explore the market risk, which indicates an increase in the tail risk of energy price volatility and the dramatic turbulence in energy markets. In addition, a Vector Autoregressive (VAR) model is developed to analyze how the main macroeconomic indicators are affected when energy prices fluctuate. According to the model results, energy price fluctuations caused by the COVID-19 have a negative impact on economic growth and inflation, with a higher contribution to the latter changes. Based on the modeling analysis results, this paper makes constructive suggestions on how to stabilize energy prices and recover the economic development in the context of the COVID-19 pandemic.

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