Empirical Study Of China's Economic Fluctuations: Descriptive Facts And Stylized Facts (1949 ~ 2006)

The facts of business cycle can be studied by two ways. One is economic history, another is time series analysis. We call the former description facts, and the latter stylized facts. The description facts mostly describe the business cycle phenomenon in language. Their conclusion is qualitative and based on the events and details which had really happened, while some statistic data are always cited. The stylized facts are empirical laws which are found through applying some transforms and contrasts to the macroeconomic time series. Their conclusion is quantitative and paying more attention to the uniform characters of business cycle in a long time period. Chinese business cycle researchers can be divided into two types. Some researchers make less use of the achievements of the mainstream macroeconomics, so their works lack universality and profundity. On the other side, some researchers think little of the economic history, and their works are short of all-sided and detailed understanding to real world. Our research tries to avoid these two biases through investigating two kinds of facts, thereby providing some basic guidance for the theoretical study of Chinese business cycle.From the viewpoint of the description facts, Chinese business cycle can be divided into a few obvious stages, and each stage has its sharp-cut peculiarity. There are two good reasons why this condition exists. First, China economy had been closed and agriculture dominating when the PRC was founded in 1949. Modernization and industrialization are two long-range goals, hence the stages of economic development results in the stages of business cycles. Second, after the foundation of the PRC, the centralized planned economic institution was established rapidly, which was based on unitary public ownership. Some modifications and reforms had been carried on continuously because the abuse of this institution appeared soon. After the market-oriented economic reform started in 1978, the economic structure and operation had changed hugely. Therefore the stages of institutional change shaped the stages of business cycles.How to decompose the original time series and get the fluctuation components is always a crucial problem in business cycle research. In our stylized facts analysis, we chose the filters which were widely used in RBC program. With the emergence and development of RBC theory, three influential filters were designed to detrend the data successively, which are HP filter, BK filter and CF filter. They can all be regarded as frequency selective filter, because of their ability to remove the components of all the other frequencies while leaving the desired components intact. After analyzing the mechanisms and peculiarities of these filters, we found it's difficult to select the best one in theory. Thus we use all the three filters in our study, and what made us so lucky is that the differences are not so much.From the viewpoint of the stylized facts, the behaviors of Chinese macroeconomic time series are very different between pre and post reform and opening up. We summarize thirteen important changes in all. Most of them exhibit the promotion of the degrees of marketization, monetization and industrialization of China economy, which are consistent with the economics common sense and intuition, for example, the change of real economy and price's amplitudes, the changes of the fiscal revenue and expenditure's business cycle property, the changes of the money supply's business cycle property and the change of the co-movement with UK and US etc. Furthermore, these changes are all correlated with economic development and institutional change. On the contrary, some changes seem to be relatively erratic and abnormal, for example, the changes of price and inflation's business cycle properties, the change of aggregate employment's business cycle property and the change of real interest rate's business cycle property etc. It is not so easy to explain such changes in general economic theories simply, and some profounder and more prudent research must be carried on. In addition, the Phillips curve relationship and the inflation-money growth relationship are tested by China data in this paper. Using the CF filter, we found that the behaviors of the two relationships are very different while regarding the reform and opening up as the dividing line. In pre reform and opening up duration the behaviors are abnormal. However, these relationships are verified in post reform and opening up duration: the trade-off between the unemployment and inflation is only a short-run phenomenon, and it does not come into existence in the long-run; money growth and inflation is correlated significantly in the long-run, while this correlation is not significant in the short-run.The break between pre and post reform and opening up makes it very difficult to explain Chinese business cycle in theory. How to get a reasonable trade-off between theoretical internal consistency and external consistency, and built a business cycle model which can explain the realities of China economy, is a very important task in future.