An Empirical Test Of The Kaldor - Carlesky Economic Cycle Model In China

Fluctuation of China’s investment has obvious time lag compared to the fluctuation of output since1978. Mismatch of investment growth and economic growth is considered to have negative impact on the stability of the economy, or even lead to instability. Consequently, we can better understand how economic instability rise and how investment impact economic development through analyzing the relationship between time lag in investment and business cycle. This paper reconstructs Kaldor-Kalecki business cycle model according to China’s economic data, and gives some suggestions on how to reduce time lag in investment for a more stable economy of China.This paper gives some details about business cycles and fluctuation of investment in China since1978and driving forces of time lag of investment in China. Then the author uses Kaldor-Kalecki business cycle model to analyze the impact of time lag of investment on China’s economy.China’s economic data implies that there exists nonlinear relationship between’ investment and output in China. Data also shows that time lag of investment is about one year. So it’s a appropriate to use Kaldor-Kalecki business cycle model for analyzing relationship between time lag of investment and business cycles in China. Several conclusions can be drawn from the empirical results of this paper:1. Time lag of investment has negative impact on the stability of China’s economy.2. Given different levels of output, investment time lag’s impacts on economy’s stability are different.