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Do Permanent Shocks Explain Income Levels? A Common Cycle–Common Trend Analysis Of Regional Income Levels For China

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  • Paresh Kumar Narayan
  • Seema Narayan

Abstract

. In this paper, we analyse per capita income levels of China's three main regions: the western region, the eastern region and the central region using common cycle and common trend tests. Our main contribution is that we impose the common cycle and common trend restrictions in decomposing shocks into permanent and transitory components. We find that: (i) there is evidence for two cointegrating relationships and one common cycle; and (ii) the variance decomposition analysis of shocks provides evidence that over short horizons, permanent shocks play a large role in explaining variations in regional per capita incomes.

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  • Paresh Kumar Narayan & Seema Narayan, 2008. "Do Permanent Shocks Explain Income Levels? A Common Cycle–Common Trend Analysis Of Regional Income Levels For China," Pacific Economic Review, Wiley Blackwell, vol. 13(5), pages 656-662, December.
    • Handle: RePEc:bla:pacecr:v:13:y:2008:i:5:p:656-662
    DOI: 10.1111/j.1468-0106.2008.00427.x
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    2. Narayan, Paresh Kumar & Narayan, Seema & Smyth, Russell, 2011. "Energy consumption at business cycle horizons: The case of the United States," Energy Economics, Elsevier, vol. 33(2), pages 161-167, March.

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