Measurement And Forecasting Of Business Cycles In China

2013is the key period for China’s economic structural adjustment and the implementation of the12th Five Year Plan. However, in terms of domestic and external environment, China’s economic development still faces many difficulties. From the point of the external environment, due to the influence of European debt crisis, the European economy currently remains stagnant. At the same time, the American economy downward pressure is still big. And for the United States, the ideal is just the weak growth. So these factors may make one of the three "troika" of China’s economic growth—export growth weak; From’the point of the internal environment, on the one hand, China’s economic development has entered the "structural slowdown" stage. On the other hand, given the lag disadvantages caused by the large-scale investment in2008, simple investment policy will not be used again. And the new leadership has released policy signals and a firm determination to push through reforms. So economic stimulus policy like the four trillion investment does not conform to the new government policy ideas. Therefore, how to properly use the macro-control policy to balance the adjustment of economic structure and maintaining a rational economic growth has become a focus of many schoars. The success of a country’s macro-control policy largely depends on the identification of the economic cycle. So how to timely identify the economic cycle fluctuation and take proper macroeconomic control policy is very important to balance the adjustment of economic structure and a rational economic growth.Our paper uses a new non-parameter method based on Markov process to identify turning points and analyze economic fluctuation. The indicators are not simply selected from the existing one or two macroeconomic indicators, but from the indicators of various economic activities based on time difference correlation analysis method and former literature. Those indicators consist of our prior index group and consistent index group. We adopt the popular growth rate cycle as the reference and the coincident composite index as China’s overall economic activity. In addition, we try to use the new diffusion index based on the nonparametric method and a multivariate Probit model to analyze China’s future economy. Firstly, we use the industrial added value growth as the reference to selecte prior index group and consistent index group based on the time difference correlation analysis method and former literature. Then using NBER. we get the coincident composite index whose turning points are identified by the above non-parametric method in1997.1～2013.5. According to the results, the period includes5economic cycle fluctuations and they show asymmetrical features to some extent; The duration of the expansion is slightly longer than that of the recession stage, respectively19.2and15.8months. The steepness of expansion is smaller, respectively0.65and0.79, which means economy rising is a little slower than dropping. Based on the results above, we construct the diffusion index of leading and coincident diffusion index. The new diffusion index is in essence expansion or recession probability. According to the analysis, China’s economy has been in the bottom in June2012, and the economy is in slow recovery period. In addition,we construct a multivariate Probit model based on the leading indicators and carry out3months out of sample forecast and the forecast period is2013.6～2013.8. The results show that the3months’ recession probabilities exceed the preset threshold value of0.5, which is in conflict with the above analysis. Combine the results and our government macro policy, we think that our country is in a new round of economic cycle fluctuation and in the stage of slow recovery at present, but the economy downward pressure still exists; in general, it is not expected to decline dramatically during the second half of2013.The innovation of our paper is mainly reflected in two aspects:(1)Using nonparametric algorithm put forward by foreign scholars, we identify turning points of business cycles presented by the coincident composite index in China.(2)On the basis of the above algorithm, we construct a new diffusion index and Probit model respectively to analyze China’s future economy, which will help to some extent to enrich China’s economic analysis method.