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China's Business Cycles: Perspectives from an AD-AS Model

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  • Zhang, Yin
  • Wan, Guanghua

Abstract

The present paper represents a first attempt to study China's business cycles using a formal analytical framework; namely, a structural VAR model. It is found that (i) demand shocks were the dominant source of macroeconomic fluctuations, but supply shocks had gained more importance over time; (ii) driving forces of demand shocks were consumption and fixed investment in the first cycle of 1985-1990, but shifted to fixed investment and world demand in the second cycle of 1991-1996 and the post-1997 deflation period; and (c) macroeconomic policies did not play an important part either in initiating or counteracting cyclical fluctuations. Copyright 2005 East Asian Economic Association.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2004/rp2004-54.pdf
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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper RP2004/54.

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Length: 24 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:unu:wpaper:rp2004-54

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Keywords: business cycle; structural VAR; demand shocks; supply shocks; China;

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References

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  1. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, International Monetary Fund.
  2. Mohsin S. Khan & Zuliu Hu, 1996. "Why is China Growing so Fast?," IMF Working Papers 96/75, International Monetary Fund.
  3. Zhang, Yin & Wan, Guang Hua, 2002. "Household consumption and monetary policy in China," China Economic Review, Elsevier, vol. 13(1), pages 27-52.
  4. Tao Zhang & Heng-fu Zou, 2001. "Fiscal decentralization, public spending, and economic growth in China," CEMA Working Papers 58, China Economics and Management Academy, Central University of Finance and Economics.
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  7. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  8. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
  9. Blinder, Alan S, 1997. "Is There a Core of Practical Macroeconomics That We Should All Believe?," American Economic Review, American Economic Association, vol. 87(2), pages 240-43, May.
  10. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
  11. Stefan E. Oppers, 1997. "Macroeconomic Cycles in China," IMF Working Papers 97/135, International Monetary Fund.
  12. Dibooglu, Selahattin & Kutan, Ali M., 2000. "Sources of real exchange rate fluctuations in transition economies: The case of Ploand and Hungary," ZEI Working Papers B 14-2000, ZEI - Center for European Integration Studies, University of Bonn.
  13. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  14. Yu, Qiao, 1997. "Economic Fluctuation, Macro Control, and Monetary Policy in the Transitional Chinese Economy," Journal of Comparative Economics, Elsevier, vol. 25(2), pages 180-195, October.
  15. Warne, A., 1993. "A Common Trends Model: Identification, Estimation and Inference," Papers 555, Stockholm - International Economic Studies.
  16. Blanchard, Olivier, 1997. "Is There a Core of Usable Macroeconomics?," American Economic Review, American Economic Association, vol. 87(2), pages 244-46, May.
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Citations

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Cited by:
  1. Min Gong & Wenpu Li, 2010. "Assessing the role of aggregate demand and supply shocks in China’s macroeconomic fluctuation," Frontiers of Economics in China, Springer, vol. 5(3), pages 464-488, September.
  2. Li, Cheng, 2010. "Government Size and Macroeconomic Stability: Sub-National Evidence from China," MPRA Paper 28226, University Library of Munich, Germany.
  3. James Laurenceson & Corrine Dobson, . "China’s business cycles since 1979: a chronology and comparative analysis," EAERG Discussion Paper Series 1705, School of Economics, University of Queensland, Australia.
  4. Gao, Xu, 2007. "Business Cycle Accounting for the Chinese Economy," MPRA Paper 7050, University Library of Munich, Germany, revised Dec 2007.

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