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China’s Business Cycles between 1954 – 2004: Productivity and Fiscal Policy Changes

  • Hsu, Minchung
  • Zhao, Min

We study the real business cycles in China between 1954-2006, and examine the changes after China’s market-oriented reforms starting in 1978. We overcome some data problems and find that the economic volatility is generally moderated after 1978. However, the relative volatility of each variable to output diverges. We undertake a neo-classical approach to investigate factors that can drive the features of long-term fluctuations and the differences between the pre-1978 and the post-1978 periods. We find that TFP process can explain the main features of fluctuations and the general moderation but not the relative volatility changes. We show that policy changes in government expenditure can account for the relative volatility divergency. Counterfactual experiments are also provided to discover the role of each factor in explaining the long-term fluctuation features in China.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21283.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:21283
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  1. Jordi Gali & David López-Salido & Javier Valles, 2004. "Understanding the effects of government spending on consumption," International Finance Discussion Papers 805, Board of Governors of the Federal Reserve System (U.S.).
  2. Michal Horvath, 2008. "The Effects of Government Spending Shocks on Consumption under Optimal Stabilization," CDMA Working Paper Series 200805, Centre for Dynamic Macroeconomic Analysis.
  3. Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present and Future," RCER Working Papers 522, University of Rochester - Center for Economic Research (RCER).
  4. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  5. Coenen, Günter & McAdam, Peter & Straub, Roland, 2008. "Tax reform and labour-market performance in the euro area: A simulation-based analysis using the New Area-Wide Model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2543-2583, August.
  6. Ravn, Morten O & Uhlig, Harald, 2001. "On Adjusting the HP-Filter for the Frequency of Observations," CEPR Discussion Papers 2858, C.E.P.R. Discussion Papers.
  7. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  8. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  9. Chow, Gregory C, 1993. "Capital Formation and Economic Growth in China," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 809-42, August.
  10. Keisuke Otsu, 2008. "A Neoclassical Analysis of The Korean Crisis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 449-471, April.
  11. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
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