Analysis On China's Business Cycle Fluctuations

During the period of more than three decades since the reform and opening-up,the economy of China has been rapidly developed along with business cycle fluctuation.Most of the existing analysis of China's business cycle fluctuation is empirical research on its state and features based on macro data.Though there was some cause analysis,little attention to the effect of inventory investment to economic fluctuation.The ratio of inventory investment to GDP in China has been decreased in recent years,while its inventory level is still pretty high compared with developed countries.Therefore,analyzing China's economic fluctuation from the perspective of inventory investment will improve the explaination of China's business cycle fluctuation theory and help to find out the effect of inventory investment to business cycle with different impact factors.Based on the macro data since 1978,this paper firstly investigates the state and features of China's economic cycle and the fluctuation of inventory investment.And it concludes the dominant impact factors to business cycle in different phase.Nextly,inventory investment is introduced to the New Keynesian Model,and Bayesian method,Impulse Response Function as well as Variance decomposition are applied to analyze the effect of inventory investment with different shocks.The findings are as follows:firstly,the role of inventory investment on business cycle is closely related with shock sources.When a demand shock occures,inventory investment will stabilize economic fluctuation;while it will exacerbate economic fluctuation with a supply shock.Secondly,Inventory investment will increase the importance of supply shocks to output fluctuation and inflation,strengthen the influence of corporate behavior to business cycle.Thirdly,in the sample period,inventory investment performs as an accelerator to economic fluctuation on a whole,which means that China's economic fluctuation is mainly caused by the impact of supply side.Thus,for macroeconomic policies implementation,more attention need to be paid to supply management,which is very different from the aggregate demand management-oriented regulatory.