Business Cycles, Consumption and Risk-Sharing: How Different Is China?
Can standard business-cycle methodology be applied to China? In this chapter, we address this question by examining the macroeconomic time series and identifying dimensions in which China differs from economies (such as Canada and the U.S.) that are typically the subject of business-cycle research. We show that naively applying the standard business-cycle tools to China is no more ridiculous than applying it to Canada, although the dimensions along which the model struggles is different. For China, the model cannot account for the low level of consumption (or high saving) as a proportion of income observed in the data. An examination of provincial level consumption data suggests that the absence of channels for intranational consumption risk sharing may be an important reason why the business-cycle model has trouble accounting for Chinese consumption and saving behavior.
|Date of creation:||Jul 2010|
|Date of revision:|
|Publication status:||published as Business Cycles, Consumption and Risk-Sharing: How Different is China” (with C. Curtis), in Yin-Wong Cheung, Vikas Kakkar, and Guonan Ma, eds., The Evolving Role of Asia in Global Finance, forthcoming.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Stephanie Schmitt-Grohe & Martin Uribe, 2001.
"Closing Small Open Economy Models,"
Departmental Working Papers
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