Research On The Phase Transitions Of Chinese Business Cycles And The Monetary Driving Effect

There must be prosperity and recession in all countries’ economy. In order to prevent the economy change radically, the government ought to make an accurate judgment on the situation of the macro economy, and take effective economic policy. Monetary policy is an important means to regulate and control macro economy, and money supply is the most direct indicator to measure the monetary policy. In business cycles, characteristics of the business cycle fluctuation and the effect of money supply on economy have been cause for concern. It is a research focus of many scholars both at home and abroad.Firstly, we regard industrial production growth as a benchmark index, according to relevant standards and principles, we can select four indicators from a series of alternative indicators, which are industrial added value, sales revenue, fixed asset investment and generated energy. These monthly indexes form a group of economic coincidence indicator. By using dynamic factor model calculating economic boom index, we find that the index which is calculated by dynamic factor model can describe Chinese economic situation well. We regard it as the index which is used to measure domestic economy in this paper. Based on the SW index, we divide the economy cycle into two parts, one is the expansion phase, the other is the recession phase, and establish the MS model, combined with the estimated results of the model and the relevant filtering probability, we find that Chinese business cycles are asymmetric.Secondly, using the rolling correlation coefficient and its extended form, we verify the time-varying correlation between the broad money supply growth and the economic climate index, and the correlation is different at different times. And the money supply is ahead of the economic fluctuation, although the characteristic is not stable early, the lagged rank of the maximum cross correlation coefficient changes always, but it becomes stable gradually in recent years, so M2 can be used as a leading indicator of the economy, the economic trend in the future can be warned. But the correlation coefficient could not reveal the deeper relationship between the two, and we build S.t Louise equation and MS, in the models, the lagging of the money supply is used as an explanatory variable, the estimated results all indicate that the money supply has a driving effect on the economy, and the driving effect of the money supply is different at different stages, the effect of it is stronger on the way up than on the way down.Finally, considering the hypothesis of MS that transition probability is constant is not reasonable, so we choose MS-TVTP to make a further study, in the model we used two M2 lags behind as a factor which can influence the transition probability. The final result shows that Chinese business cycles are asymmetrical, and MS-TVTP model describes characteristics of business cycles and forecasts the business cycle transformation better than MS. Based on the analysis of the key times of business cycles and the corresponding transition probability, combined with the relevant research conclusions of this paper and the time background of the economy at the critical points, we can discover that money supply has an asymmetrical driving effect on the conversion of business cycles. When business cycles turn from expansion to recession, the transition probability under the influence of money supply will be significantly increased, and when the economy turns to expansion, the rise of the transition probability is limited, it shows that the time-varying transition probability can warn the peak well, but it is weak in judging the bottom of the business cycle.