Effect of coal price on the economy in China

Zhaoxia Si ^1,2, Xiangjun Chen ²

COMPUTER MODELLING & NEW TECHNOLOGIES 2014 18(12A) 547-552

¹ School of Environment and Spatial Informatics, China University of Mining and Technology, Xuzhou, 221116, China;
² College of Safety Science and Engineering,Henan Polytechnic University, Jiaozuo, 454000, China.

Coal is the main economic resource in China. To study the effect of coal price on the economy, a vector auto regression model was established through a co-integration test based on the coal price and economic variables. An empirical analysis of the relationship between coal price fluctuation and economic variables was conducted by using an impulse response function and variance decomposition method. Results demonstrate that a co-integration relationship exists between the coal price and economic variables. Coal price fluctuation has a short-term and long-term positive effect on CPI, a short-term negative effect and long-term positive effect on PPI, a short-term positive effect and long-term unobvious impact on GDP. From the impulse response analysis, within the forecast period, coal price fluctuation has an obvious positive effect on CPI in long time and PPI unobvious positive effect on GDP at beginning, its positive effect on GDP enhances as the forecast period increases. The analysis of the contribution shows that coal price fluctuation influences economic variables to different extents. A coal price management mechanism should be established and perfected to reduce the impact of coal price fluctuation on the economy. Furthermore, the energy consumption structure should be improved.