The Application Of Wavelet In Analysing Chinese Business Cycle And Forecasting Major Economic Indicators

The business cycle is a phenomenon in all countries. China is no exception. In addition, the business cycle is an important branch in macroeconomics. It is also a practical problem related to our real life.It has been nearly two hundred years since the western countries began to study the business cycle. There are many controversies about the measurement, characteristic and prediction of the business cycle. Meanwhile, this formed a large number of different academic schools and academic advocate, and a lot of empirical analysis. Because of various reasons, our country started to do relative research in 1980s. The goal to study the business cycles is to keep the economy develop continually, fast and healthily. It will also do a great help for the government to monitor the economy.Up to the present, the valley-valley method and the spectrum analysis are used in the domestic research on the business cycle. The valley- valley method can explain very well at time series, but it can't explain the frequency information. And the spectrum analysis is on the contrary.There are many methods to predict the economic development, such as the limited boundary time sequence analysis model, the growth curve model, the growth rate model, the ARIMA model, etc.The wavelet analysis is a new method in recent years. It is a time-frequency method. And it has more advantage than other method. Therefore, there is a great need to apply wavelet analysis in china business cycle and prediction study.Based the domestic and international research results, this paper try to apply the wavelet analysis in researching the length and characteristics of China's business cycle since 1990s. We also prove that the single variable wavelet prediction model is better than other prediction model. In this paper we use the single variable wavelet prediction model predict the main economic index in 2007 and put forward some relative suggestions. The framework of this paper is as follows.Chapter 1 mainly looks back the history of the domestic and international business cycle and introduces the domestic and international research on the business cycle analysis and prediction which use the wavelet analysis.Chapter 2 mainly introduces the wavelet method. We introduce many relative special terms because of that the wavelet analysis method is less used in the macroeconomics. We try to make the concepts easy to learn.In chapter 3, we get the equivalent diagram and equivalent line diagrams from the coefficients which Calculate form the sequence of GDP growth rate with Sym(8) filter. The date is from 1991:Q1 to 2006:Q3. We find that there is the strong and high value at the beginning of the year 1993. There is the strong and low value at the year of 1999. There is the business cycle of 9~10 years, which called Juglar business cycle. There is hypo-high value at the year of 2004~2005. The hypo-business cycle of 7 years comes into being .However, the opposite valley is not appeared .In addition, it is a weak and high value at the year of 2002. It means it has the business cycle of 4 years. There is an unobvious weak and high value at the second quarter of 1999 .The business cycle of 3 years comes into being.In the picture of isoline, we can see that the coefficients of the wavelet are sparser between 1996 and 2000. This indicate that the fluctuation is stronger. The isoline is denser after 2001, which indicates that the GDP growth rate variates little. According to the above, the GDP growth rate maybe high and steady in the coming years.In chapter 4, the GDP growth rate is decomposed into the short-term factor, middle-term factor, long-term factor, and the growth trend by the wavelet analysis method. For prediction result, we find that the wavelet method is good at prediction. And then we predict the main economic index in 2007 based on the former research. The result shows that China's economy will continue to keep the characteristics of " high speed and low inflation"in 2007. Although the pressure of fixed investment increase quickly, the import and export growth rate and the consumer price indexes may descend, China's economy still will continue to keep steady and high state. So we had better keep on the double steady fiscal and monetary policy, control the quick growth of the investment, enhance the consumption ability, boost the domestic demands and control the mobility excess problem.