Study On The Characteristics Of Macroeconomy Operating And The Effects Of Macro Control Under The Financial Cycle Fluctuation

Since the outbreak of global financial crisis in 2008,researchers become more and more concerned about the influence of financial cycle on macroeconomic issues.Before that,mainstream opinion believes that finance is a veil,although it is known that finance development is a two-edged sword of the prosper of economy and there is a need to be aware of the underlying financial risk while promoting the development of finance to service the real economy.It is revealed in the crisis of 2008 that there is a unique law of financial cycle fluctuation and a strong effect of it on the real economy.Therefore,the importance of financial cycle can no longer be ignored.Motivated by these,a growing number of research is devoted to the study on financial cycle and progress is being made.However,the whole study is at the beginning.Some significant issues are still under debate.A more integrated and theoretical system is to be founded.To be specific,previous literature tends to focus on the output effect and inflation effect when analyzing the macroeconomic effect of financial cycle.While financial cycle can have a much broader influence on macroeconomy,thus limiting the range of research has no benefit for establishing an integrated theoretical system.What's more,the emphasis of previous literature is more on the time-varying effect,and less on the structural effect,thus ignoring the heterogeneity of financial cycle's macroeconomic effect in different sectors and industries.Finally,literatures about the effects of macroeconomic regulation need to be enriched.Particularly little analysis is done based on the cross-cycle design and regulation.In order to broaden our empirical understanding of these interactions and helping to complete the financial cycle theory framework.This paper attempts at carrying out three parts of working from the second chapter on the basis of related literature review in the first chapter.(1)Characterization and typical facts analysis of financial cycleCharacterization and typical facts analysis of financial cycle is the premise and foundation of the entire study.Previous literature is relatively sufficient,however,there is omission of information in both the single index method and the comprehensive index method depicting the financial cycle,thus making it difficult to observe the structure of the financial cycle.Therefore the second chapter,combining the time domain and frequency domain method,analyzes the multiple financial cycle index separately,which reflects the relationship between quantity and price of the financial cycle structure,and nested structure relations with financial cycle of different span.Then compare it with the economic cycle from the perspectives of structure.The results show that the structure of financial cycle on quantity and price present no similar feature with economic cycle.Quantitative index is relatively lag in the financial cycle.What's more analysis of the financial cycle span structure shows that the main span is about 25 years,with no obvious nested structure.(2)Analysis of time-varying characteristic and the structural characteristics of the macroeconomic operation under financial cycleAnalysis of time-varying characteristics and structural characteristics of the macroeconomic operating under financial cycle is conducted in chapter 3 and 4.Firstly,a TVP-VAR model is built in chapter 3 empirically measuring the time-varying effects of financial cycle in output and inflation reflected in consumer price index CPI and producer price index PPI.Results show that the impact has the time delay feature,and the rising of asset prices can effectively lift the price,especially the upstream price.There is difference between the path of price volatility in upstream and downstream,when shocks of exogenous financial variables is different in regimes and source.Secondly,in order to analyze the influence of financial cycle on Chinese fiscal sustainability,we adjust the fiscal balance by calculating Chinese financial-neutral output gap and the potential output.The empirical results show that our financial cycle is obvious asymmetric and that during financial busts fiscal balance adjusted for the financial cycle is greater than traditional cyclically adjusted balance,suggesting that fiscal balance adjusted for the financial cycle eliminates the financial cycle's disturbance on judging whether the fiscal position is sustainable to a certain extent.Lastly,in order to study the macroeconomic effects of financial cycle in open economy,we employ an markov switching model to analyze the characteristics of global financial volatility in different regimes and build a panel data model with moderating effect to conduct the econometric tests.Empirical result shows that when the global financial cycle is in the high volatility regime,the degree of market risk-aversion soar and the level of corresponding capital flow is low,there is a more obvious effect on alleviating the negative impact of capital flow on monetary policy independence of exchange rate fluctuation policy;while in the opposite situation,the effect of exchange rate fluctuation on alleviating the negative impact of capital flow on monetary policy independence is weakened.Chapter 4 analyzes how leverage level in different sectors is affected by the financial cycle in the first place and finds that: leverage in the non-financial corporate sector is more sensitive with the financial cycle than that in residents and government sector;leverage in central government is less sensitive than that in local government.Then the research of industry heterogeneity under financial cycle find that: the output response of the first and second industry under the impact of the financial cycle are relatively similar,heterogeneity is mainly manifested in the third industry.The output response of third industry is different from the first and second industry in amplitude when the proxy variable of the financial is asset prices,and in direction when the proxy variable of the financial is the credit,thus suggesting financial cycle's interaction with the third industry is obviously different from that with first and the second industry.(3)Analysis of macroeconomic control effect under the financial cycleThis part including chapter 5 and chapter 6 analyze the control effects of traditional macroeconomic policy and the cross-cycle policy.Traditional macroeconomic policy in this paper refers to the macroeconomic policy with no cross-cycle feature.Considering that there is numbers of study on the control effects of traditional macroeconomic policy under financial cycle,chapter5 is devoted to refine and deepen the current analysis.Chapter 5 firstly analyses monetary policy's impact on financial cycle through both the quantity-based and the price-based monetary policy reaction function channel and its time-varying mechanism.The rolling regressions show that: both under the quantity-based rules and the price-based rules,monetary policy's reaction sensitiveness to credit mainly affects the fluctuation of financial cycle,while under the price-based rules,the gap of different effects brought by monetary policy's reaction sensitiveness to credit and monetary policy's reaction sensitiveness to credit is small;compared with the situation under the price-based rules,monetary policy's reaction sensitiveness to credit plays a more important part in influencing the evolution of the financial cycle,under the quantity-based rules,and amplifies gradually.The difference of above study between previous analysis lies on the stress on monetary policy reaction function channel which means that monetary policy influences the financial cycle through its reaction function instead of its stance.By constructing the financial condition index FCI,chapter 5identifies the state of the financial cycle and uses the MS-VAR model to analyze the impact of the two-pillar policy regulation on economic growth when the financial cycle is in different states.The empirical results show that there are differences in the impact of two-pillar policy regulation on economic growth when the financial cycle is in different states.When the quantitative monetary policy is coordinated with the macro-prudential policy of liquidity ratio regulation and the capital adequacy ratio,the easy monetary policy promotes economic growth during the financial boom period,but when coordinated with the excess deposit reserve ratio,the easy monetary policy is more effective in promoting economic growth during the financial bust period.These works fill the gap that previous study of two-pillar policy pays less attention to output.Lastly,also in order to fills the gap discovered in the literature review,chapter 5 conducts an MS-DSGE models to include the three regime changes of two-pillar policy,and apply counterfactual method to investigate the rational expectations.The empirical results show that: the short-term impact of two-pillar policy on credit cycle is more obvious than long-term ones;reactions of credit variables in regime of moderately easy monetary policy are different from the reactions in regimes of the other two;when the model considers rational expectation,reactions of credit variables are different from reactions in rational expectation ignored model.The existence of rational expectation effect is obvious.Considering that there is little study,especially empirical study,focus on the control effects of cross-cycle two pillar regulation policy,chapter 6 establish macro-structural equation model at first,setting the target variables in policy function as forward-looking variables.and consider policy space variables in welfare analysis to determine the optimal adjustment coefficient of policy rules secondly,thus analyzing the effect of two pillar policy under cross-cycle design and adjustment.Impulse response analysis shows that compared with the traditional counter-cyclical two pillar regulation policy,cross-cycle designed two pillar regulation containing forward-looking monetary policy,can better maintain the stability of financial cycle.Particularly the monetary policy forward-looking type two pillar regulation and the fully forward-looking type two pillar regulation works better,compared with the macro-prudential forward-looking type two pillar regulation.Results of welfare analysis including policy space factor show that when the macro-prudential policy is fixed,compared with the traditional counter-cyclical regulation,forward-looking monetary policy with mild response,can reduce the welfare loss.