The Dynamic Econometric Studies On The Relativity Between Economic Policy Mechanism And Business Cycle Fluctuation

Chinese economy has being prompted forward in an unceasing fluctuation since theestablishment of the People's Republic of China. Our national economy has experienced theeconomic development high tides many times, and also ebb tides. Especially, since theimplementation of reform and opening-up policy, our traditional economy has changedremarkably. That is to say, the economy growth rate speeds up, the gross economic scalerapidly expands. Simultaneously,there is obviously drop in the economic fluctuation degreecompared with that before the implementation of reform and opening-up policy. From 1979 to2003 the yearly average rate of GDP is 8.8%. This is a miracle in the economic developmenthistory. As a reforming and developing nation, many economic problems are still harassingour country and being the focuses of economy research. Therefore, to comprehensivelyunderstand our national economy, it is important to do research on the problems of periodicalfluctuations of the growth.The paper starts from expatiating the economic growth theory and the business cycletheory, which have been researched for several hundred years overseas, and alreadyaccumulated plentiful research results. The mainstream theory of economic growth theorymainly researches how capital, labor force, technology advancement and other factorsinfluence the economic growth, as well as analyses long-term relationship and theirdevelopment tendency among main macroeconomic variables, such as output, capital,employment and price etc. The modern business cycle theory mainly studies it on two aspects.On one hand, it mainly analyses the no stochastic deviation of macroeconomic variables fromtheir natural growth tendency, which possesses certain statistical relevance. On the other hand,weighing the coordination movement among main macroeconomic variables and themacroeconomic indicators over their own natural tendency, we judge the business cyclesphases the economy belongs to. Since long ago the economic growth theory and the businesscycle theory developed forward along their direction respectively. There are very fewempirical researches in China to combine the two together. Based on inducing andsummarizing the two categories of theories, this paper attempts to unify them to study therelationship between the economic growth and the business cycle fluctuation in China. Thuswe obtain some beneficial policy enlightenment. We study China's economic policy mainly from the following two aspects. Above all,thorough analyzing economic policy mechanism, including monetary policy and financialpolicy, and the existing problems, we study empirically the relativity between economicpolicy mechanism and business cycle fluctuation of the economic growth. Then, by furtheranalyzing validity and asymmetry of the economic policy during the transforming period, wediscuss empirically economic policy validity and asymmetry etc. in the different businesscycle phases. Thus we obtain the corresponding policy enlightenment and suggestions. Wewould understand deeply certain realistic and systematical problems accompanying therunning of our macro economy by the paper. In doing so, this would provide theoretical basisfor further reforms. Meanwhile, it is beneficial to ensure our economy run smoothly andhealthily by avoiding fierce economic fluctuation caused by economic policy misconduct andthe accumulation of financial and monetary risks as well. There are total seven chapters in this paper, as follows: Chapter one is introduction. It mainly introduces and explains concisely the content andthe method of this paper, and also the paper selected topic significance, the research method,the datum source and the paper frame. In addition, this chapter summarizes the domestic andforeign frontier research in this domain. This chapter helps us to gain a overall view of thewhole paper. Chapter two is about long-term economic growth theory and economic policymechanism. As a developing nation with such huge population, one of the most seriousproblems that harass our country is unemployment. But the economic growth is the mosteffective method in solving this problem. To well understand the economy of our country, thispaper begins with the economic growth theory. At first, this chapter outlines importance anddevelopment of the economic growth theory. Then it studies neoclassic economic growththeory (Solow model) and the new economic growth theory, and its corresponding policymeasures. This section analyzes specifically the Solow model, Diamond model (thegeneration overlaps model) and the research and development model, as well as the practicalsignificances and flaws of those models. It is important to reform economic system andconstitute macroeconomic policy in China. Chapter three studies short-term business cycle fluctuation and economic policymechanism. This chapter mainly introduces basic concept and measure methods aboutbusiness cycle. We mostly use the H-P filter method to obtain the cyclical ingredient of thetime series variable in the paper. Then we introduce briefly the modern business cycle theory,for example, multiplication acceleration model, money business cycle theory, real businesscycle theory and so on. Furthermore, we study the mechanism of business cycle fluctuationfrom the internal conduction mechanism and exterior impact mechanism in China. Finally, westudy the relationship between economic policy and the business cycle fluctuation. Throughanalyzing intrinsic stability problems of financial policy and the monetary policy, we studythe influence economic policy to the business cycle fluctuation. Chapter four analyzes the stylized facts about economy growth and the business cyclefluctuation in China. At first, we study the stylized facts on economy growth, namely that isgross output increase quickly, following the business cycle fierce fluctuation in the economicgrowth process. Next, we analyze the economic growth phrase and the business cyclefluctuation development situation in China. Then we studies the influential factors on thebusiness cycle fluctuation and analyzes empirically coordination movement among mainmacroeconomic variables (for example, fixed asset investment rate, monetary supply growthrate). Finally, we study the relationship between the long-term economic growth and theshort-term business cycle fluctuation. We use ARCH model and its the expanded models tostudy real GDP growth rate and the economic fluctuation, and obtain the correspondingpolicy enlightenment. Chapter five is about economic policy function mechanism and validity. This chaptermainly studies monetary policy conduction mechanism and the countermeasure on theproblems of monetary policy conduction process. Then we study monetary policy validity andendogenesis, analyze the relationship between monetary policy changes and real output usingthe Granger Causality Test. Then we study the financial policy conduction mechanism andanalyze the Crowding Out Effect question of financial policy, and validity of positivefinancial policy from the theory and the practice. Finally we analyze the relationship betweenfinancial policy and monetary policy as well as their cooperative questions. Chapter six analyzes empirically the relativity between monetary policy functionmechanism and business cycle fluctuation. Initially, we use Cointegration theory and theError Correction model to study the stability of monetary demand function and its the policyenlightenment. We discover that there is the dynamic stability of monetary demand functionin China, and monetary policy operation has the dual goals on price stabilization and outputsteadily. Afterwards we utilize VAR model to research the relationship between the choice ofmonetary policy intermediate target and the macroeconomic fluctuation. We discover thatthere is remarkable influence on nominal economy and the actual economy after monetarypolicy intermediate target is changed through the methods of the impulse response functionand the variance decomposition. Finally we use Wald Test etc. to analyze validity andasymmetry of the monetary policy, and discover that it is more remarkable contractionarymonetary policy reducing real output than expansionary monetary policy increasing realoutput, and put forward beneficial policy proposals for macro economy regulation. Chapter seven focuses on positively the relativity between financial policy functionmechanism and business cycle fluctuation. At first, we research financial policy functionperiodicity and asymmetrical questions by the Granger Causality Test method, and discuss theselection of financial policy tools and the discretionary financial policy by VAR model and theimpulse response function in China. In doing so, we find significant characteristics in thefinancial policy in China, and notable negative relativity between finance scale and real GDP...