The Estimation, Decomposition And Forecast Of ChinesePotential GDP

Estimating potential output is a topic of important significance that can help better understand the China’s current situation and the authorities would implement proper macro-control policies. After thirty years of rapid growth, China’s economic growth is experiencing a sharp slowdown since2012. And it causes some controversy that whether China’s economic growth can still maintain a high level in the future. In fact, the issue focuses on the potential GDP of China. The dissertation tries to evaluate, decompose, and forecast China’s potential GDP.The dissertation employs a modified Kalman filter using state space model to evaluate potential GDP. Here are some meaningful conclusions:First, China’s potential GDP is declining and the output gap is negative, the potential GDP growth rate in the Forth quarter of2013is7.86%. The result shows that there are bottlenecks on both demand and supply side, which contains structure and cyclical factors. Second, the potential GDP relies much on capital input during recent ten years. Third, following IMF’s assumption on labor force, it can be forecasted that China’s potential GDP growth will continue to fall down. However, the decline would be a lengthy process and above7%in2017with big probability. Fourth, we can learn from experience of international comparison, innovation and effective measures are of crucial importance when facing the decline of potential GDP.