Empirical Research Of Output Gap And Financial Cycle In China

Potential economic growth is the growth rate of potential output. It representsunder the existing technical level, when the economy is full employment and theinflation is stable, the maximum sustainable output growth rate can be realized. Forthe first time since this concept is put forward by the American economist Okun in1968, potential economic growth has been the focus issue of economic research andmacro decision-making proposition. Many macroeconomic policy formulations aredepended on the estimates of the potential economic growth level. Especially for thedifference of the potential output and the actual output, i.e., the output gap, Theoutput gap is closely related with the inflation. When the actual output is greater than(or less than) the potential output, the inflation will rise (or fall). When the inflation ismoderate, the economy growth can be sustainable. But with the changing of the neweconomic environment, there has been some new explain factors for the maximumsustainable potential output.Since the1980s, the global economic environment has appeared some newfeatures. In the condition of new economy, globalization and financial liberalizationbrings about the rising prosperity of the global economy. According to the WorldBank and IMF figures, the global average annual compound growth rate of GDP hasachieved unprecedented scale of3.2%in the last25years from1983to2008.Globalization has raised the compound annual growth rate of the global merchandisetrade to5.3%, about two times to the growth rate of global GDP. While the financialliberalization has raised the compound annual growth rate of the global capital flowsto13.4%, which is four times to the global GDP growth.From the supply perspective, globalization has brought rapid growth of tradeflows, which enabled the worldwide configuration of the capital, labor and resources.The producer allocated the responded link to the lowest cost regions in the world, sothat they can get the lowest cost of the product. At the same time, the worldwidelowest cost products can be circulated by the trade flow to the most vigorous market for sale. The trade flow can also shorten the supply chain for the producers worldwide.And also the production cycle of the products will be shorten. The result is thatproducts supply is greater than the effective demand.According to the World Bank and IMF data show that from1983to2008for25years, the world’s broad money (M2) with an average annual compound growth rateof5percent in2009, the world’s broad money (M2) to GDP ratio of125.7%. Broadmoney supply growth rate is much larger than the real economy, promote effectivedigestion of excess demand for the product. Broad money Super bring excessliquidity in financial markets has also spawned-especially in expanding the size ofthe derivatives market. According to the Bank for International Settlements statistics,in2009the market size of the global derivatives of$677.1trillion, is13.4times theglobal GDP. Reservoir effect in financial markets Super gather broad money broughtexcess liquidity, calm the massive inflation expectations.This paper aims to discuss the impact of the financial liberalization andglobalization on China’s economic potential growth under the new economicenvironment. From the sustainability of the potential economic growth rate, andinvestigate the logic between the financial cycle factors, the production factors andthe rise of the economic growth rate. We use a large number of empirical data andeconometric model to verify the correctness of this logic.Chapter1: Firstly, the main problem studied in this paper, illustrates the potentialproblems of economic growth in the new economic environment, new situations, newchanges, discuss current research problems to be solved, states the research potentialin the new economic environment, economic growth rate the importance of theproblem. Secondly, the study discusses the situation at domestic and abroad, leads tothe overseas economic circles in the study of potential economic growth issues raisednew research ideas, especially in the financial cycle theory for the understanding ofpotential economic growth. Finally, based on the contents of the article prompted theresearch methods and main research work.Chapter2: Firstly, the study discusses the traditional theory of potentialeconomic growth, based on the summary of the differences and lack of mainstreamtraditional theory. Secondly, based on the new economic environment described by foreign Economists, new factors effect on research of potential economic growth.Chapter3: In this chapter, monetary factors as the balance sheet of the fourdepartments——government, enterprise, bank and residents, is assumed to effect onpotential economic growth. That is to say: financial cycle fluctuations in the way ofbubble burst and economic crisis to adjust the economic cycle, is to enhance theefficiency of the current global economy, redistribute resources which occupied byinefficient enterprises, and ultimately improve the return on capital. In empiricalanalysis section, we use trend decomposition method and DEA-DA method tocalculated potential output and real estate factors, the monetary variable, collateralfactor explain the role of the output gap by using non-parametric estimation methods.Chapter4: This chapter considers the exchange rate factor, this factor behind ourresources, labor productivity in the arena of international Competition. We considerabout the potential impact of exchange rate factors on potential economic growth, andthus the use of threshold regression model through empirical study real effectiveexchange rate data, NDF offshore renminbi exchange rate factors such as the impacton the price level of potential economic growth.Chapter5: by the end of2014the international crude oil, iron ore, agriculturalproducts and other commodities have suffered different degrees of decline, fallingcommodity prices to some extent reflects the international economic growthmomentum, indicating the shrinking global demand. This chapter start by usingnon-parametric generalized additive model to analyze the effect of commodity priceindex for the output gap factors.Chapter6and concluding section discusses the underlying trend of economicgrowth prospects, policy recommendations and future problems to be studied.