The Impact of Supply Shocks on the Fluctuation of Steel Industry Output

We investigate the impact of three different kinds of disturbance on steel industry output in China. They originate, respectively, in aggregate demand, technology, the labor and the asset supply. Based on the real business-cycles approach, the paper finds that the shocks of supply elements in steel industrial are the major source of Steel Industry Output fluctuation, and analyses these propagation mechanisms affect on output by impulse response function and VECM. Meanwhile we detect the contribution of the supply component by variance decomposition. It seems plausible that changes in technology have a significant permanent component; In this case, the innovation raises the expected path of the level of technology permanently. The increase 1% of the fixed assets investment in one period has been leading to rise of steel output until 10 years; The labor supply disturbances are relevant, but play little role on steel output fluctuations. Therefore, the short-run behaviors of Steel Industry Output and long-run behaviors of Steel Industry Output is largely explained by supply side shocks.