A Business Cycle Model Based On Monetary Value

From 1978 to 2009, China's economy has increased at rate of 15.7% in nominal term. Although GDP has maintained rapid growth, economy has experienced four obvious business cycles in this period, and each round of business cycle is accompanied by structural fluctuation of investment and consumption, profits and wages, capital stock and income flow, which has become the basic features of the business cycle. However, the so-called mainstream economics based on production function are unable to give the reasonable explanation about this, because all variables of national income accounting are the money value, and have nothing to do with technology (neoclassical aggregate production function), but decided by the social relations or the specific currency financial system (Liu Xin,2003). This determines the mainstream economics, especially neoclassical theory based on the technical analysis, can not cover and explain the basic logic relations of the economic variables. Therefore, this dissertation tries to establish macroeconomic analysis framework based on money value, focusing on structural changes of stock-flow in the economic fluctuations, and analyze the basic rules of the business cycle.Firstly, this dissertation revises the traditional income-expenditure model, and forms a monetary income-expenditure model, which includes cost-benefit analysis and national income accounting. Based on this, we analyze the two dynamic mechanisms in business cycle. The first is the interaction of profits and investment, as well as the transformation investment to the capital stock; the second is the structural changes of capital stock and income flow. The model conclusion indicated that the business cycle fluctuation is caused by the structural imbalance of capital stock and income flow, and the equilibrium relation of the internal structures is the decisive factor of economy maintained steady growth. On the basis of entity economic model, this dissertation adds money market and capital market to extend this model. The conclusion indicated that, in the business cycle, the fluctuation of asset-liability ratio will change interest rate, the mortgage loan ratio and other related parameters of endogenous monetary system, which will accelerate cycle adjustment of capital stock and income flow, and make the economic trends smoother; The entity economic fluctuation will cause family portfolio change, and form the crowding-out effect to loanable funds of money market, which strengthen self-adjusting mechanism of endogenous monetary system; Eventually, based on structural changes of capital stock and income flow, we build a business cycle model including commodity market, money market and capital market.On the basis of stock-flow cycle model, we analyze the two typical states: industrial structure imbalance and stagflation. The interactive mechanism among the industrial structure, income distribution, and demand structure will enlarge industrial difference in aspect of profit, investment and wages, which leads to a more serious structural imbalance; Continuous use of Keynesian policy will destroy self-adjustment mechanism of stock-flow, and make the normal business cycle trend change. The continuous structure imbalance of capital stock and income flow will eventually cause the stagflation. In fact, the industrial structure effect explains the root cause of the expanding difference of industry development, income distribution, investment and consumption. The interpretation of stagflation provides a theory basis for analysis of current macroeconomic situation and policy choice.In empirical analysis part, through analysis two business cycles (1990-2000, 2001-2010), we have confirmed the stock-flow business cycle model. In each cycle, relative to consumption and wage income, the investment and capital stock will surge upward to the cycle peak and downward to the cycle bottom. The conclusion indicated that, it was not the subprime crisis but the structural imbalance of capital stock and income flow since 2003 that caused the economic recession at the end of 2008, which was a normal cycle adjustment. However, since 2009, large amount of government investment and financial credit have deteriorated structural imbalance, and caused serious stagflation problem. We can predict that, in 2010 and the next years, the structural problem will still exist, and cause a more serious economic downturn, such as non-uniformity of investment and consumption, GDP growth and employment growth. This is the dissertation's basic judgment about the current macroeconomic situation.