Research On Economic Uncertainty,Business Cycle And Monetary Policy Effectiveness

In the new historical journey of building a modern socialist country towards the second centenary goal,significant changes have taken place in the political and economic environment at home and abroad.One outstanding manifestation is the frequent occurrence of domestic and international economic uncertainties.This has led to increased volatility in the operation of China's business cycle,making it more difficult to control monetary policy.Therefore,scientific research and judgment on the impact of economic uncertainty on the business cycle and the effectiveness of monetary policy has both theoretical and practical significance for improving the effectiveness of macro-control and promoting high-quality development.This paper follows the overall research framework of "document combing-theoretical analysis-current situation measurement-empirical research-theoretical expansion",using a variety of methods including literature analysis,theoretical combing,index measurement,dynamic econometric empirical research,and DSGE theoretical simulation,to carry out theoretical and empirical research on the regular characteristics of the relationship between economic uncertainty,business cycles and monetary policy regulation.Firstly,this paper combs the origin,concept definition and measurement of economic uncertainty from the theoretical level,and analyzes the theoretical mechanism of the impact of economic uncertainty on the business cycle,the theoretical mechanism of the impact of economic uncertainty on the effectiveness of monetary policy,and the relevant theories of monetary policy regulation under different business cycles,which lays the theoretical foundation for the full text of the study.Based on the existing literature,the basic concept of economic uncertainty can be defined as the unpredictability of economic entities for future events.There are mainly the following five methods to measure the degree of economic uncertainty,including the use of existing economic variables as proxy variables,the degree of disagreement between professionals in economic forecasts,the use of modern information technology and big data synthetic index method,and the use of crawlers to grab newspaper keywords and the method of extracting common factors with high-dimensional macro data,among which the latter two methods are widely used.The theoretical mechanism analysis results show that the impact mechanism of economic uncertainty on the business cycle mainly includes six aspects: investment option mechanism,savings prevention mechanism,financial friction mechanism,information transmission mechanism,long-term investment mechanism,and H-A transmission mechanism.The impact of economic uncertainty has a significant impact on the business cycle and monetary policy regulation.There are also significant differences in monetary policy theories under different business cycle theories,which has given birth to different monetary policy rules.Secondly,this paper measures business cycle index,and analyzes the dynamic correlation mechanism between economic uncertainty and business cycle.The results show that the time when China's economic uncertainty index rises is mostly related to specific economic and political events.From January 1996 to June 2020,China has experienced three complete business cycles,and it is currently in the fourth one.The results of the time-varying Granger causality test show that when the economic uncertainty is high,the economic uncertainty has a certain degree of predictability for the business cycle;at the time when the economic cycle alternates,the economic cycle has a certain degree of predictability for the economic uncertainty.The analysis result of dynamic condition correlation coefficient shows that there is a significant negative dynamic condition correlation between economic uncertainty and business cycle.Economic uncertainty fluctuates sharply during economic contraction period,while economic uncertainty fluctuates smoothly during economic expansion period.The dynamic spillover index analysis results show that there is a significant time-varying dynamic spillover effect between economic uncertainty and business cycles,and business cycle fluctuations have increased economic uncertainty,and economic uncertainty has also exacerbated business cycle fluctuations.Thirdly,this paper constructs the MS-AR model to divide China's economic uncertainty index into a three-zone system.On this basis,the LT-TVP-VAR model is constructed to analyze the response and response of monetary policy to varying degrees of economic uncertainty.The control effects are as follows:(1)Economic uncertainty shocks have a positive time-varying shock effect on quantitative and price-based monetary policies,but the regulatory effects under the low,medium,and high zoning systems of economic uncertainty are obviously different.(2)When the economic uncertainty is low in the zoning system,the quantitative policy has a more obvious effect in regulating the output gap.When the economic uncertainty is in the mid-to-high zone system,the effect of price-based monetary policy on the implementation of counter-cyclical control of the output gap is more obvious.(3)Quantitative and price-based monetary policies have a better effect on inflation gap regulation when economic uncertainty is in a low zoning system,while quantitative monetary policies have limitations in controlling inflation under medium and high zoning systems,while price-based monetary policies have limitations.The effect of monetary policy on counter-cyclical control of the inflation gap is better.Fourthly,this paper constructs TH-SVAR and SEIVAR models to empirically analyze the effectiveness and asymmetry of monetary policy regulation at different stages of the business cycle.Research results based on the TH-SVAR model show that the same monetary policy tool has a symmetrical control effect on output and inflation in the same business cycle stage,but the control effect of different monetary policy tools at different stages of the business cycle shows asymmetrical characteristics.The regulatory effect of quantitative and price-based monetary policies during the period of economic expansion is better than that during the period of economic contraction.In the period of economic expansion,price-based monetary policy is better than quantitative monetary policy in controlling output,and quantitative monetary policy has better effect on inflation control than price-based monetary policy.During the economic contraction period,the effects of the two policy tools on output and inflation are relatively complex.The research results based on the SEIVAR model show that there are significant differences and asymmetric characteristics in the effects of monetary policy on inflation and output in different stages of the economic cycle.Quantitative monetary policy is more effective for inflation control,and price-based monetary policy is more effective for output control.The effect of quantitative monetary policy on inflation and output is better in the period of economic contraction than in the period of economic expansion.The effect of price-based monetary policy on inflation during the economic contraction period is more in line with policy expectations.The price-based monetary policy controls output during the period of economic contraction better than during the period of economic expansion.Finally,this paper constructs a DSGE model that includes expected factors and heterogeneous shocks to discuss the effectiveness of monetary policy,and draws the following conclusions:(1)When the policy expectation factors are introduced into the model,a better fit can be achieved with the data,and the effective identification of the expected shock form makes the response degree of the instrumental variable to the fluctuation of the target variable change to different degrees.(2)Inflation is more sensitive to the control of interest rate tools,and the effect of quantitative tools on output is relatively large.However,output is prone to reverse fluctuations under quantitative shocks,which reduces the effectiveness of control.After the expected shocks and unexpected shocks are identified,the impact of the expected shocks of the instrumental variables on the fluctuations of the target variables has increased,and the convergence period of the target variables has been shortened.(3)The dominant sources of shocks that affect output and inflation fluctuations are quantitative policies and interest rate policies,respectively.An effective decomposition of the structure of shock sources can improve the effectiveness of monetary policy.Based on the above research results and China's monetary policy control practices,this paper proposes the following policy recommendations:(1)Accurately identify the impact of economic uncertainty,stabilize economic policy expectations,and respond to economic uncertainty with policy certainty.(2)Optimize the monetary policy volume and price coordination mechanism,and strengthen the combination and coordination of policy tools.(3)Strengthen the anticipation management and public opinion guidance of micro-subjects,and enhance the effectiveness of monetary policy control.