Research On China's Economic Cycle Based On The Perspective Of Hierarchical Factor Models

Study of economic cycles takes an important part in macroeconomic analysis.Using hierarchical factor models,this academic paper investigated China's economic cycle between 1995 and 2014.We selected 30 province's macro-economic data.Compared with previous studies,this paper has a number of features: First,the data we chose not only contains GDP,also include data about investments and consume.As a result of the systematic data,we can avoid the quality problems about the GDP data.Second,this study uses data at the provincial level rather than national level.Data at the provincial and municipal level has at least two advantages: A sampling of more data means more reliable analysis results;and it will give a better reflection of structural problems about provincial-level economic.Third,this study uses a hierarchical factor model to analyze China's economic cycle.Hierarchical factor models have a lot of advantages in the analyzing economic cycle.After the Whiteman et al.(2003)'s important documents,hierarchical factor models have been widely used in the decomposition of different levels in the study of economic cycles.Compared to the traditional methods to analysis the economic cycle,hierarchical factor models have several advantages: Firstly,the model can accommodate massive amounts of data.Advantages of using massive data to analysis,such as less sensitive to data selection,can be achieved in hierarchical factor models;Secondly,the models can break down economic cycles into different ranges and different levels.Thirdly,the models allow the existence of errors in the data.In the model,the realistic data was broken down into different levels of economic cycles and disturbance.If there are errors in the data,they will be absorbed into the perturbation term of the model.Therefore,they will not affect our analysis.This study made the following conclusions: First,according to the NBER definition of the economic cycle,China's economy experienced more than one complete cycle during the 1995-2014.The length of the cycle has a 17-year,and the highest point is 0.02,and the lowest point-0.02.After the full cycle,it goes into the declination part of next cycle and the downward trend continued till the end.Second,our decomposition results reflect the history of economic fluctuations and regulation practice.Government's macro-control policy had achieved desirable results.Meanwhile,taking into account the location and characteristics of the economic cycle,we suggest that the timely implementation of regulatory policy should be continued in order to maintain stable economic growth.