The Analysis And Forecasting Of Macroeconomic Climate Based Ongeneralized Dynamic Factor Model

In the process of macroeconomic analysis and the economic early warning, consulting cycle index is an important empirical method, which has been widely used in the actual macroeconomic forecasting and management.Through the analysis of cycle index to the economic, we can study the characteristics and regularity of economic fluctuations, forecast the trends of economy and its turning point, which can provide a lot of valuable reference information to help the governments to regulate and control the economy.The study of economic prosperity based on the economic cycle theory and cycle index theory has been becoming mature, now the traditional composite index which developed by the U.S. National Bureau of Economic Research (NBER) and dynamic factor model which gradually proposed by the American scholar Stock and Watson are used across the world.Recent years, the world economic situation is more complex and changeable, but the scholars did not stop the pace of exploration and research. New economic prosperity methods are constantly be proposed and applied to the actual economic to analysis and forecast the economy. The initial dynamic factor model is introduced into the state space framework by Stock and Watson, they use Kalman filtering techniques to identify theelements which affect overall economic fluctuations, the method improved the recognition accuracy of economic situation. The generalized dynamic factor model (FHLR) based on the dynamic factor modelis developed by Forni, Hallin, Lippi, Reichlin and other scholars, they improve the model continously, its theory and empirical research is gradually becoming mature. The Chicago Federal Reserve Board has used this model to build the Chicago National Activity Index, and updates the index monthly. The model has also been used by the UK’s economic policy research center to build consistent climate index of Euro-zone.Now the global economic situation still has a lot of uncertainties, the recovery of economy appears very difficult, which is not optimistic. Meanwhile, our country is in the critical period of economic development and structural adjustment, keeping the economy development stable and healthy is the most important task among all the works. Economic development presents cyclical and volatile, so the government needs to adopt appropriate macroeconomic adjustment and fine-tuning policies to the economy, therefore, we need monitor the real-time economic performance and predict future economic trends precisely.Based on the above considerations, this paper on the basis of scholars’ research at home and abroad use the traditional composite index method, Stock-Watson cycle index and the generalized dynamic factor model respectively to build Chinese macroeconomic cycle index and to forecast our country future economic development, and based on the research result, giving some corresponding advice. In building of the three climate indexes, firstly, this paper use a traditional method which is not on the basis of modelto construct consistent index and leading index,the research of which since January2001to June2012; then using the same data, let the dynamic factor model transform into state-space model, using Kalman filtering techniques to estimate the model,we construct consistent and leading index of our country; Finally, the paper use the generalized dynamic factor model whichlet all the leading, consistent and lagging indicators into the model framework, fully considering the current, leading and lagging information of all the indicators construct consistent climate index, meanwhile, based on the result of the index, the paper analysis the dynamic effects of consumption, investment, import and export to China’s economic growth. Addition, the paper make the extrapolation of the consistentclimate index, we make a comparative analysis the predicted value of the index between actual industrial added value, the resultshows that the predicted value can better fit the actual industrial added value. By comparison of three methods, we find that the fluctuations of the economic which reflected by the three different indexes is not exactly the same, but in the important economic turning points, the three climate indexes well reflected the economic trends, such as after China’s entry into WTO, exports brought high economic growth of our country, as well as the U.S. subprime mortgage crisis made a serious decline of economic growth in China, soon after our government brought a large-scale economic stimulus measurement to make the economic recover rapidly,and the emergence of certain economic overheating, etc. Theseeconomic phenomena fitted the trend of climate indexesvery well.The paperlastly concluded that:since June2012and after a period of which, China’s economy is still likely to face greater downward pressure, the economic situation is still not optimistic.Faced the opportunities and difficulties of the economy, the Government needs to maintain a continuous and stable macroeconomic policies, increase the adjustment of economic structure and deepen the reform efforts. For the attitude to economic growth, we should not hold the only GDP rate theory, but a correct view of the current economic growth rate down, to analysis the reason of economic decline, while maintaining the economic growth does not draw the lower limit that the whole system can tolerate. Now, the government should speed up the reform of the administrative system and transform government functions furtherly, reducing administrative intervention to the market, giving full play to the role of market players. From long-term perspective, although the economic environment in China shows a little grim, the reform task is still arduous, but as long as we uphold and implement the correct macroeconomic policies, China’s economy is still able to maintain steady and rapid development and our country’s socialist modernization is still able to forward steadily.