A Quantitative Study On China's Financial Business Cycles

The outbreak of the global financial crisis in 2008 not only exposed the shortcomings of the traditional business cycle theory,highlighted the decisive role of financial factors in the business cycle,more importantly,but also made the mainstream macroeconomics clear the development direction of business cycle theory-financial business cycle theory.The long-term neglect or exclusion of financial factors in mainstream macroeconomics and the complexity of incorporating financial factors into business cycle models have greatly restricted the development of financial business cycle theory.With the mainstream economicson's widespread reflection on the importance of the the theory of financial business cycle,the theoretical improvement and practice summary around the financial business cycle have become one of the hot topics of macroeconomics in the post-crisis era.Overall,a large number of studies have begun to analyze the micro-basis of financial business cycle under the framework of general equilibrium analysis,but there is always a lack of agent indicators of financial business cycle in line with economic reality as a basis for policy formulation and a comparative benchmark for modeling.Especially,domestic research on financial business cycle is still of singleness and deficiency.Under the background of China's economic deceleration,the continuous generation and evolution of financial risks within the financial system is likely to lead to a global crisis.In order to better understand,measure and respond to the normal fluctuations and extreme risks of the financial business cycle,this paper,based on the literature review,theoretical combing and analysis and interpretation of China's current economic-financial relationship,measures China's financial business cycle index and identifies the normal response mechanism and tail dependence characteristics between financial business cycle and financial risk from the perspective of applied research,which is of great practical significance to China's financial stability and economic growth under the new economic situation.The main contents of this paper are as follows.(1)Extracting volatility components of financial cycle based on dimensionality reduction method,using MS-TVTP model to prove,identify and explain the non-linear mechanism of financial factors on output gap.The study finds that there is a trend self-sustainment characteristic in China's finance,and the current downward trend has broken through the threshold value,and the forecast shows that the downward trend will continue.Economic shocks affect financial stability.We should abandon the traditional way of regulating financial markets by monetary policy,prevent the negative impact of the reduction of foreign exchange reserves caused by capital outflow on financial stability,and reduce the degree of separation between financial and economic development.The volatility variable of financial cycle contains important forecast information of output gap,the volatility of financial cycle and economic uncertainty have obvious time-varying and regional effects on output gap.China's output gap spontaneously shows obvious pro-cyclical nature,and macro-control is necessary in the process of factor input and resource utilization.Investment is ineffective,external conditions for import and export are no longer available.Consumption is of importantance for China's steady growth.A small price rebound and active fiscal policy are conducive to the realization of steady growth.The real unemployment rate is lower than the natural unemployment rate.Since 2002,China has maintained medium and high-speed growth.The global financial crisis in 2008 is an important node in shifting China's economic growth.At present,China's economic growth is still relatively stable in a moderate growth range.(2)Combining sign restriction with FAVAR model to measure China's financial business cycle index.The results show that financial shock is an important source of economic cycle fluctuations.During the sample period,the long-term trend level of China's financial business cycle continued to decline in a relatively smooth way,indicating that the potential growth level of China's economy is gradually convergent,and its short-term volatility components are highly consistent with the operational characteristics of the real financial and economic system,and have a certain predictive ability for key economic variables such as GDP and CPI,which indirectly proves the applicability and validity of the financial business cycle index obtained under the sign restriction framework.At present,China's financial situation has broken through the threshold under the impact of Sino-US trade frictions in 2018,with a high degree of uncertainty.At the same time,China's financial economic cycle is not self-stable with high transition frequency between regional regimes.Therefore,more attention should be paid to the prevention and response of financial risks during the formulation and implementation of China's economic policies,so as to avoid triggering systemic financial risks and eventually a global economic crisis.(3)By introducing credit constraints and endogenous banking sector decision-making,the financial factors are embedded in the new Keynesian standard dynamic model,and the dynamic effects of various financial and economic shocks are comprehensively examined.It is found that the introduction of financial factors will not cause significant differences in impulse response paths of all key economic and financial variables,that is,not all exogenous shocks will produce financial accelerator effect.Among them,the financial accelerator effect of loan default shocks is the strongest,but the impact of corporate loan default shocks is mainly concentrated in the short and medium term.Resident loan default shocks in the long term have a comprehensive negative impact on the expansion of the financial and economic cycle.The improvement of housing demand can be used as a regulatory tool to stimulate economic growth in the short run,while the improvement of housing preference can be used as a regulatory tool to improve credit demand and the prosperity of the real estate market in the long run.It is worth emphasizing that investment shocks can only stimulate the expansion of the financial business cycle in the short run.Therefore,in the long run,we should encourage and support social innovation more vigorously,and realize the cyclical expansion of the economy through technological progress.(4)Based on the measured financial business cycle index,the threshold effect of financial leverage on the operation of financial business cycle is discussed by means of multiple threshold vector autoregressive model,and the feedback mechanism of financial business cycle fluctuation on financial leverage is clarified.Empirical evidence shows that the threshold effect is significant and asymmetric.When the financial business cycle is in a low-speed convergent regime,the self-stability is high,and it has an external stabilizing effect on the macro-financial leverage.However,no matter which regime the financial business cycle is in,the macro-financial leverage shows a significant financial accelerator effect.Therefore,if economic regulation and control policies aim at stable economic growth,we should restrain the continued rise of macro-financial leverage.Comparatively speaking,micro-financial leverage is relatively stable,so there is still large room for further leverage,but attention should be paid to the potential risks caused by the complex correlation between financial and economic variables.(5)On the basis of using CoVaR method to measure systemic financial risk reasonably,the tail dependence between systemic financial risk and financial economic cycle is identified by extreme distribution logarithm model.The study finds that the extreme value distribution of systemic financial risk in China is significantly asymmetric,and the tail risk has "unbounded loss".Comparatively speaking,the extreme value distribution of China's financial business cycle is relatively symmetrical,and the tail risk is relatively controllable,although the tail dependence between them is weak,and the time-varying volatility is low.The results at the model level show that there is a relatively stable "firewall" system between China's systemic financial risk and the financial business cycle,but considering the long-term existence of the phenomenon of "de-reality to virtual" in China's finance,the approximate independent parameter estimation may only be caused by the time mismatch or trend deviation at the micro-basic data level.At present,the operation of China's financial business cycle is relatively stable,so the formulation of economic control policies should give greater weight to the prevention and control of financial risks.On the whole,the paper can complement the existing research to a great extent,and provide new perspectives and ideas for the next stage of related research and development.At the same time,China's economy has the realistic need to study the financial economic cycle in depth and meticulously,and the corresponding research conclusions also provide the most appropriate guidance for policy formulation and implementation of financial risk prevention and control and macroeconomic regulation in the next stage,which is of positive significance to the realization of China's economic objectives of "risk prevention,reform and stable growth".