Structural Transition and China's Business Cycle
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| Title | Structural Transition and China's Business Cycle
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| Author | Zhang Liancheng and Ren Guangyu |
| Organization | Capital University of Economics and Business |
| Email | zlc99@cueb.edu.cn；renguangyu_econ@foxmail.com |
| Key Words | Business Cycle; Potential Output; Output Gap; State Space Model; Extended Kalman Filter |
| Abstract | During more than thirty years' high growth rate, the structures of China's economy and policy regime have been changing. Although it may have rich economic information, traditional multivariate filter would loose flexibility caused by the fixed parameters specification. To relax the strict constraint, this paper constructs a nonlinear structural model with time-varying coefficients to describe China's changing economic environment. The model establishes the dynamic relationship between inflation and output gap to ensure economic meaning. The long growth cycle of potential output, short growth cycle of output gap, dynamics among major variables and time-varying coefficients imposed by exogenous variables can be estimated by Extended Kalman Filter. After analysis on the robustness of results, the paper discusses China's business cycle and its operating law in relation to economic background and external shocks. It concludes the ability to maintain a high growth for years, while China is experiencing shift period for growth. The outlooks on China's economic trends in short-term and long-term are also given. |
| Serial Number | WP733 |
| Time | 2014-10-21 |
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