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Assessing the Role of Aggregate Demand and Supply Shocks in China’s Macroeconomic Fluctuation

Author

Listed:
  • Min Gong

    (Center for Macroeconomic Research, Xiamen University, Xiamen 361005, China)

  • Wenpu Li

    (Center for Macroeconomic Research, Xiamen University, Xiamen 361005, China)

Abstract

The combination of a high growth rate and low information has been observed since the late 1990s in the Chinese economy. Should the fact be considered as a result of greatly improved supply capability or should the fact reflect the improvement in the government’s aggregate demand management? In this paper, we try to assess the role of aggregate demand and supply shocks in China’s macroeconomic fluctuation. We use a bivariate structural VAR model to investigate macroeconomic dynamics for China within the aggregate-demand and aggregate-supply framework, using the quarterly data in the period of 1996Q1–2005Q4. Our principal findings are following: (1) China’s high growth shall be associated more with greatly improved supply capability, especially after its WTO entrance. The expansionary aggregate demand policies may have limited effects to raise the growth rate in the post-1996 in China. This result suggests that we need a more pro-growth policy stance in order to maintain a high and stable growth. (2) The low inflation in that period is driven primarily by weak aggregate demand rather than supply factors.

Suggested Citation

  • Min Gong & Wenpu Li, 2010. "Assessing the Role of Aggregate Demand and Supply Shocks in China’s Macroeconomic Fluctuation," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 5(3), pages 464-488, September.
    • Handle: RePEc:fec:journl:v:5:y:2010:i:3:p:464-488
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    File URL: http://journal.hep.com.cn/fec/EN/10.1007/s11459-010-0108-y
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    Citations

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    Cited by:

    1. Chen, Anping & Groenewold, Nicolaas, 2019. "China's ‘New Normal’: Is the growth slowdown demand- or supply-driven?," China Economic Review, Elsevier, vol. 58(C).
    2. Mustafa Çakir & Alain Kabundi, 2017. "Transmission of China's Shocks to the BRIS Countries," South African Journal of Economics, Economic Society of South Africa, vol. 85(3), pages 430-454, September.

    More about this item

    Keywords

    macroeconomic fluctuation; structural VAR; supply and demand shocks; China;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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