Time-Varying Impacts of Structural Oil Price Shocks on Economic Policy Uncertainty in China: The Role of a Hybrid Monetary Policy Tools Framework

This paper examines the time-varying responses of China’s economic policy uncertainty (EPU) to five structural oil-price shocks, with particular attention to the responses of price- and quantity-based monetary policy instruments. Using quarterly data from 2007Q2 to 2025Q1, we estimate a TVP-VAR-SV model that incorporates both the interest rate gap and the money supply gap to capture the coexistence of price- and quantity-based policy tools in China. The results show that only aggregate supply shocks elicit a statistically significant EPU response, while the other oil shocks are mainly associated with output fluctuations. Monetary policy instruments respond primarily to output dynamics, while their median effects on EPU remain limited. Time-varying impulse responses reveal substantial heterogeneity across major events, including the global financial crisis and the COVID-19 pandemic, and indicate shifts in the relative responses of monetary policy instruments during China’s transition toward a more price-based policy framework. These findings underscore the importance of distinguishing among oil shock sources and strengthening policy communication during periods of monetary policy transition.