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Business Cycle Accounting for the Chinese Economy


  • Gao, Xu


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.

Suggested Citation

  • Gao, Xu, 2007. "Business Cycle Accounting for the Chinese Economy," MPRA Paper 7050, University Library of Munich, Germany, revised Dec 2007.
  • Handle: RePEc:pra:mprapa:7050

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    References listed on IDEAS

    1. Yin Zhang & Guanghua Wan, 2005. "China's Business Cycles: Perspectives from an AD-AS Model ," Asian Economic Journal, East Asian Economic Association, vol. 19(4), pages 445-469, December.
    2. Kobayashi, Keiichiro & Inaba, Masaru, 2006. "Business cycle accounting for the Japanese economy," Japan and the World Economy, Elsevier, vol. 18(4), pages 418-440, December.
    3. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    4. 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.
    5. Tiago Cavalcanti, 2007. "Business cycle and level accounting: the case of Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(1), pages 47-64, April.
    6. Suparna Chakraborty, 2004. "Accounting for the 'Lost Decade' in Japan," Macroeconomics 0408009, EconWPA.
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    Cited by:

    1. Yuanyan S Zhang, 2011. "Credit Market Imperfection and Sectoral Asymmetry of Chinese Business Cycle," IMF Working Papers 11/118, International Monetary Fund.

    More about this item


    Business cycle fluctuations; Business cycle accounting; Chinese economy;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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