The Research Of Asymmetry In China’s Business Cycle

The asymmetry phenomenon in economic fluctuations has been noted long before. Now it obtains more and more attention as a basic fact of business cycle. With the rapid development of Econometric and statistical, the research of asymmetry also have a tremendous progress. In recent years,the rise of the applied economics make the research of asymmetry and the economic policy research together, which provides theories and empirical evidence to rethink the government policies. Inevitably, China’s business cycle also has the Asymmetry phenomenon, since the economy to the soft landing in1992, the economic fluctuations display a completely different situation with before, in this sence, the research of asymmetry means more practical significance. The comprehensive and depth study of the asymmetry phenomenon is not only help us to have a comprehensive and in-depth understanding of the relevant laws of China’s economic cycle and to develop in line when the fiscal and monetary policy should, but also help to grasp the development trend of the economic cycle in the next stage.This paper investigates the nature of China’s business cycle asymmetry using a dynamic factor model of output,investment,and consumption. Firstly, combining the two methods of graphic description and statistical tests with BK model which introduce the statistics to represent the asymmetry, then,the existence of asymmetry in our country’s business cycle fluctuations is fully affirmed. This is necessary to indicate when the asymmetric problems are mentioned, and is the basic for the research of specific type of asymmetry described below. Secondly, two types of asymmetry--Markov-switching model proposed by Hamilton and "plucking model" raised by Friedman, are investigated based on the above conclusion, which are generally accepted in the history of asymmetric study. The descriptions for the effect that recession on output level are totally different.For this reason, the dynamic two-factor regime switching model proposed by Kim&Piger is introduced in this article. Markov-switching in each component captures two types of asymmetry:Shifts in the growth rate of the common stochastic trend,having permanent affects, and "plucking "deviations from the common stochastic trend,having only transitory effects. The method allows tests of the marginal significance of one type of asymmetry while the other is allowed to be present. Statistical tests suggest both asymmetries were present in China’s business cycle after the soft landing. In this sence, We can conclude that the recession has permanent effects undoubtedly, but far less than the described in regime switching model.This paper is includes six sections:Section1, introduction,which introduces the background and significance of this topic, and give us a simple review of domestic and foreign research on asymmetry is made in chronological order, last makes roughly comparison and analysis.Section2makes an overview of asymmetry. The definitions of asymmetry which have far-reaching impacts are given as well as several classification methods.Then highlights the deepness and sharpness asymmetry. However, all we do above is only an preliminary understanding on the asymmetry, more representative ones are the asymmetry presented by Hamilton regime-switching model and the asymmetry which are represented by Friedman’s "plucking model". This section presents a review of the Hamilton and Friedman types of asymmetry in business cycle dynamics,lays the theoretical foundation for the empirical analysis.Section3, on the basis of the second section, according to the Chinese economy, investigates the existing types of asymmetry. To be more convincing, firstly use the recession variables----bsolute recession, the average recession and threshold recession to represent recession level. Then introducing the recession variables into the linear model (Bk model), and tests the asymmetry. The conclusions show that the asymmetry does exist in China’s business cycle fluctuations. From this part we can have a whole and preliminary understanding on the asymmetry of economic fluctuations.Section4of this paper presents estimation results of the two representative models--regime switching model and plucking model mentioned in the third part. Then,based on the estimation results,analysis the economic implications of each model. At last,gives the conclusion that two types of asymmetry are existed in China’s data.Section5is the focus of this paper, also the innovative section. An empirical test on quarterly data is conducted using dynamic two-factor model proposed by Kim&Piger, what’s more important is that significant test on the existence of both asymmetry can be done through this model. This will certainly contribute to the further understanding of China’s asymmetry phenomenon in business cycle fluctuations.The last is the conclusion of this paper, and analysis China’s asymmetry phenomenon in the business cycle fluctuations from the policy perspective.