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

Hsu, Minchung and Zhao, Min (2009): China’s Business Cycles between 1954 – 2004: Productivity and Fiscal Policy Changes.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: business cycles, fiscal policy, market-oriented reforms, China
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C82 - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data ; Data Access; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N15 - Asia including Middle East

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