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The Great Moderation in China: A Disaggregated Analysis

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  • Chengsi Zhang
  • Chaofeng Li

Abstract

This paper examines whether the major components of China's real gross domestic product (GDP) have exhibited smoother, less volatile growth since the late 1990s, and, if so, what has caused this "great moderation" in their growth. Employing unknown-structural-breakpoint tests and constructing a counterfactual analysis based on vector autoregression models, the authors show that the growth rates of all the major components of China's real GDP have followed a relatively steady course since the late 1990s, with the most marked decrease in growth volatility (i.e., volatility of growth rate of the components of real GDP) occurring in the consumption sector. Empirical results reveal that systematic policy improvements account for less than 30 percent of the drop in the volatility of growth in aggregate consumption, while policy improvements do not explain investment and rates of net export growth.

Suggested Citation

  • Chengsi Zhang & Chaofeng Li, 2014. "The Great Moderation in China: A Disaggregated Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(1), pages 150-163, January.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:1:p:150-163
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    Cited by:

    1. repec:zbw:bofrdp:2014_023 is not listed on IDEAS
    2. Sun, Weihong & Liu, Ding, 2023. "Great moderation with Chinese characteristics: Uncovering the role of monetary policy," Economic Modelling, Elsevier, vol. 121(C).
    3. Crowley, Patrick & Hughes Hallett, Andrew, 2014. "Volatility transfers between cycles: A theory of why the "great moderation" was more mirage than moderation," Research Discussion Papers 23/2014, Bank of Finland.

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