Flinancial Development And China's Economic Cycle

Since the global financial crisis,academics began to re-examine the role of financial development in the economic cycle,reflect the impact of financial development on economic cycles may exist "dual character".While financial development can promote economic growth,but also will bring new financial risks and further exacerbate economic volatility.Since the reform and opening-up policy,China's financial development achieves remarkable success,the size of the banking sector grows rapidly,the capital market continues to expand and financial reform advances steadily.Then,it is noteworthy that what role does the financial development of China play in the economic cycle.Furthermore,how can the development of China's banking sector,capital market expansion and deepening of financial reform impact China's economic cycle?And whether there is "dual character"?Based on the above issues,on the basis of the description of China's financial and economic cycle fluctuation characteristics,this thesis combines with the typical characteristics of China's transition economy,uses different angels of China's financial development as starting point,explores the channels and mechanisms from the macro and micro perspectives,through which the banking,stock market and financial reform affect the economy cycle.The main conclusions are as follows:First,for the banking industry and the economic cycle,Theoretical analysis and numerical simulation at the micro level found that the introduction of the monopoly banking sector in New Keynesian dynamic stochastic general equilibrium model will strengthen financial accelerator effect.And as the level of banking monopoly increase,financial accelerator effect will be strengthened,counter-cyclical behavior of bank monopoly premiums will be intensified,and the two will interaction with each other to amplify exogenous shocks.Empirical study at the macro level found that the size of banking financial intermediation increasing can stabilize macroeconomic fluctuations,but its impact is nonlinear.And the ratio of China's credits to GDP is more than 1.135,so the marginal effect of the size of banking will be positive.Further,empirical research with the constructed banking efficiency indicator shows it's the inefficiency of credit allocation between state-owned enterprise and private enterprise that aggravate the macroeconomic fluctuations.The past research have confirmed the growth effect of bank development.And our analysis h find that increasing the size of the banking sector will exacerbate economic fluctuations,and thus confirmed the impact of bank development on economic cycle has "dual character".Second,for the stock market and the economic cycle,Empirical analysis at the micro level finds that the size and liquidity of the stock market can effectively promote the growth of listed companies with the industry characteristics of more dependent on long-term capital or higher anticipated revenues and growth or technical and high operational risk.Specifically,the increase of the size of stock market has greater growth impact than the stock market liquidity;Relative to capital-intensive or high-value-added,high-growth industries,the stock market development has a more notable impact in promoting high-tech and innovative industry.However,macro level analysis shows that after the "Non-tradable Shares Reform",the impact of stock market liquidity shock and earnings volatility on economic cycle increases significantly,and the duration of the impact last longer.This thesis provides new evidence of stock market's growth effect from the micro-industry level.But empirical analysis at the macro level has found that the impact of stock market liquidity shock and earnings volatility fluctuations had a positive impact on the economy in the short term,which confirms the impact of stock market on the economic cycle has "dual character".Third,for financial reform and the economic cycle,at the macro level,financial reform means financial liberalization,but at the micro level,financial reform means financial innovation.At the macro level,we found that financial liberalization in China has threshold effects.That is,in its early days,financial liberalization may increase consumption volatility,but in the long term,the continuous improvement of financial liberalization will help reduce consumption volatility.However,China's However,the level of China's financial liberalization is not high enough,financial liberalization index has not reached 12.33 threshold,which means the marginal impact on consumption volatility will be positive.At the micro level,we find that when the short-term financing bills become potential financing tool,it will lower corporate financing costs,increase debt levels and promote investment,thereby exacerbating volatility of enterprise performance.The past research have confirmed the growth effect of financial reform.But this paper finds that financial reform may increase economic volatility from the macro and micro levels,which confirms the impact of financial reform on the economic cycle has "dual character".Nevertheless,in the long run,with the continuous deepening and balanced development of the financial reform,it will be conducive to economic stability.From macro and micro perspectives,this paper explores the impact of financial development on economic cycles from the banking industry,the stock market development and financial reform.It not only provides new evidence for the growth effects of stock market development at the micro industry level,but also reveals the fect that the development of China's banking sector,stock market as well as financial reform will exacerbate economic fluctuations,thus confirming that impact of China's financial development on the economic cycle has "dual character".That is China's financial development can promote economic growth,but will also exacerbate economic volatility.