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Business Cycle Accounting for the Chinese Economy

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  • Gao, Xu
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    Abstract

    We evaluate sources of business cycle fluctuations in China after 1978 with business cycle accounting method developed by Chari, Kehoe, and McGrattan (2007). We find that efficiency wedge, which represents institutional change and technology advance, was the main source of economic fluctuations in 1978 - 2006. The amplitude of it fluctuation declined after 1992, which resulted in moderation of business cycle fluctuations. We also find that distortions manifest themselves as taxes on investment, which represents frictions in the capital market, became another economic fluctuation source after 1992, which is different from results of business cycle accounting on US and Japan data. Our results also show that government consumption and net exports played minor roles in generating business cycles. Our results point out several promising directions for future research on China’s business cycle.

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    File URL: http://mpra.ub.uni-muenchen.de/7050/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7050.

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    Date of creation: Nov 2007
    Date of revision: Dec 2007
    Handle: RePEc:pra:mprapa:7050

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    Keywords: Business cycle fluctuations; Business cycle accounting; Chinese economy;

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    1. Casey B. Mulligan, 2002. "A Dual Method of Empirically Evaluating Dynamic Competitive Equilibrium Models with Market Distortions, Applied to the Great Depression & World War II," NBER Working Papers 8775, National Bureau of Economic Research, Inc.
    2. Tiago Cavalcanti, 2007. "Business cycle and level accounting: the case of Portugal," Portuguese Economic Journal, Springer, Springer, vol. 6(1), pages 47-64, April.
    3. Kobayashi, Keiichiro & Inaba, Masaru, 2006. "Business cycle accounting for the Japanese economy," Japan and the World Economy, Elsevier, Elsevier, vol. 18(4), pages 418-440, December.
    4. Yin Zhang & Guanghua Wan, 2005. "China's Business Cycles: Perspectives from an AD-AS Model ," Asian Economic Journal, East Asian Economic Association, East Asian Economic Association, vol. 19(4), pages 445-469, December.
    5. Suparna Chakraborty, 2004. "Accounting for the 'Lost Decade' in Japan," Macroeconomics, EconWPA 0408009, EconWPA.
    6. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, Econometric Society, vol. 48(5), pages 1305-11, July.
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    Cited by:
    1. Yuanyan Sophia Zhang, 2011. "Credit Market Imperfection and Sectoral Asymmetry of Chinese Business Cycle," IMF Working Papers 11/118, International Monetary Fund.

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