This paper focuses on the impact of energy prices in the process of monetary policy influencing macroeconomics. We employ monthly data spanning the period of January 2006 to June 2021 for China for money supply amount, energy price index and purchasing managers index (PMI). Two independent empirical studies for mediation and moderation effects are introduced. We firstly apply the newly proposed Granger mediation model to link the three variables. The results document that energy prices may be impacted by changes in monetary policy, which will ultimately damage the effectiveness of monetary policy in promoting economic prosperity. Then, we obtain the time-varying causality strength from monetary policy to economic boom through the TV-GC model, and detect the influence of energy prices on such strength dynamics. The results indicate a significant effect of the energy price on the time-varying causal impact strength from the money supply on PMI in both the static and regime-switching framework. In another word, the energy price could also play a moderating effect in the process of monetary policy driving the economic boom. At last, some targeted policy recommendations are also summarized based on our findings.
Keywords Monetary policy, Purchasing Managers' Index (PMI), economic boom, energy price, Granger mediation analysis, Moderation effect