The Research On The Influences Of Economic Fluctuations On Output In China

Economic growth and economic fluctuation are in the two core elements in macroeconomics research, and both have developed a variety of theoretical systems in each field. Since the reform and opening in China, the economy has experienced some significant economic fluctuations such as the severe inflation in 1994, the Asian financial crisis in 1998 and the global financial crisis in 2008. At present, the economy in China is in a critical period of transition, the economic growth is facing a challenge of greater fluctuation. By analyzing the linkages and interactions between economic growth and economic fluctuation, we can provide a reference for policy makers. The research of the effects of the degree of short-term economic fluctuation and different economic fluctuation stages on long-term economic growth is significant and meaningful for making scientific and reasonable economic policy taking into account both the long-term and short-term issues. This paper analyzes the effects of economic fluctuations on economic growth combing mathematical models and empirical research from multiple angles on the basis of systematically summarizing the related theories of the economic fluctuation and economic growth. The main contents and related innovations of this paper contain the following aspects.(1) From the perspective of the "opportunity cost" and "clean effect" theories of the economic fluctuation, we make use of provincial data and panel data threshold regression model to regress output gap representing amplitude of economic fluctuations on potential output growth and the next three years average economic growth respectively, and analyze the impact of the amplitude and different stages of economic fluctuations on the two through empirical results. The empirical results indicate that the effects of output gap representing amplitude of economic fluctuations on potential output growth and the next three years average economic growth are significantly negative, the threshold nonlinear effect is significantly as well. Among them, when the economy is in a severe recession, the degree of impact of output gap on the two is largest. When the economy is in a boom phase, the impact of the output gap on potential output growth is not significant, while its impact on the next three years average economic growth is minimal negative significant effect, which is different from the result for potential output growth. In addition, the impacts of population growth and the market process on the two are significant positive and negative significant respectively, and the ratio of investment and the opening degree have significant negative impacts on potential output growth, while the impacts of the above two on the next three years average economic growth are not significant.(2) Starting from a mathematical model, we can make a preliminary judgment about the direction of the effect of the economic volatility on the economic growth by combining the main conclusions of the model and parameters calibration. Then we empirically analyze the impact of the economic volatility on the economic growth using the GARCH(1,1) in mean model, and on this basis make a further discussion about whether this kind of impacts are different at different stages of the economic fluctuation. In particular, we divide the economy states into economic expansion state and economic contraction state using a two-state Markov regime switching model. Then we add the dummy variables representing different economic fluctuation stages from the Markov regime switching model to the previous GARCH(1,1) in mean model to empirically analyze this issue. The empirical results indicate that economic volatility has asymmetric effects on economic growth at different stages of the economic fluctuation, that is to say, in economic expansion and economic contraction, the effects of economic volatility on economic growth are significantly different and the directions are opposite. In economic expansion, the economic volatility has a significantly positive effect on the economic growth, while in economic contraction, the economic volatility has a significantly negative effect on the economic growth. The degree of this negative impact is greater than the positive impact.(3) Based on the previous study of the impact of economic volatility on real economic growth, we further research the effect of economic volatility on potential output growth. Specifically, we firstly use a state space model to estimate data series of the potential output growth within the sample, and evaluate them in a simple way. Secondly, make a detailed analysis of the dynamic effects of three main variables on potential output growth from both the perspective of time-period dimensions and time-point dimensions by the use of a time-varying parameter vector autoregressive model(TVP-VAR) containing four variables as economic volatility, trend growth of investment in fixed assets, trend growth of foreign direct investment and potential output growth. The empirical results indicate that the influence of economic volatility shock on the potential output growth is positive initially, then it turns negative in the following periods, at last it gradually returns to the zero line nearby. Meanwhile, the time varying effect of this influence is obvious. The impacts of economic volatility shock on trend growth of investment in fixed assets and trend growth of foreign direct investment are both negative, and differences of impacts of economic volatility shock on the two in sample points are obvious. The influence of trend growth of investment in fixed assets shock on potential output growth is negative initially, then this negative influence turns greater in the following periods. After reaching the lowest point, it gradually increases and returns to the zero line nearby, the time varying effect of this influence is obvious as well. The influence of trend growth of foreign direct investment on potential output growth is positive initially, then it increases in the following periods. After reaching the peak point, it gradually decreases and returns to the zero line nearby. The time varying effect of the dynamic influence of trend growth of foreign investment on potential output growth is not obvious, which is not consistent with the time varying effects of dynamic impacts of previous impulse response functions.(4) Based on the previous studies on the overall economic volatility impact on economic growth, we further analyze the effects of different sources of shocks responsible for economic fluctuations on main variables in the economic system. In particular, starting from a DSGE model including the banking sector, we estimate some particular parameters by the way of Bayesian estimation and calibrate some common parameters in the model. Finally, we make a detailed analysis of the impulse responses of main variables in the model to different five different random shocks. The results of the impulse response functions show that the technology shock has positive effects on output, investment, the relative price of capital goods, bank net worth, entrepreneurial net worth and bank lending, and it has negative effects on bank capital adequacy ratio, inflation rate and interest rate. The interest rate shock has positive effects on bank capital adequacy ratio, and it has negative effects on output, investment, the relative price of capital goods, bank net worth, entrepreneurial net worth, bank lending and inflation rate. The negative bank capital shock has positive effects on the relative price of capital goods and inflation rate,and it has negative effects on output, investment, bank capital adequacy ratio, bank net worth, entrepreneurial net worth, bank lending and inflation rate. The intertemporal preference shock has positive effects on output, total consumption and bank capital adequacy ratio, and it has negative effects on investment, stock of capital, bank net worth, entrepreneurial net worth, bank lending and inflation rate. The government spending shock has positive effects on output and bank capital adequacy ratio, and it has negative effects on investment, total consumption, bank net worth, entrepreneurial net worth, bank lending, leverage of investment and inflation rate. The standard deviations of the shocks are set to be constants, the following research will examine effects of the time-varying standard deviations of the shocks on output growth.(5) The standard deviations of the shocks mentioned above are all non-time-varying, here we make further research on the effects of time-varying standard deviations of the nominal monetary shock and real supply shock corresponding to monetarist economic fluctuations theory and real business cycle theory respectively on output growth. Starting from a mathematical model which has a general equilibrium framework, we can make a preliminary judgment about the directions of the effects of changes in variance of real supply shock and nominal monetary shock on economic growth. Then we tell the effects of volatilities of two shocks on economic growth by the use of parameter estimation and calibration. On the basis of mathematical analysis, we empirically test the conclusions derived from the above mathematical model making use of sign restriction identification in VAR model and GARCH class models, and further expand the analysis according to the final results. The empirical results indicate that the volatility of nominal monetary shock has a negative effect on the economic growth, while the volatility of real supply shock has a positive effect on the economic growth. The empirical results are consistent with the outcomes predicted by the mathematical model.