The Construction Of Chinese Macroeconomic Instability Index And An Empirical Analysis Of Its Impact On Economic Growth

In 1991,the World Bank published a report on macroeconomic stability.Since then,macroeconomic stability has begun to receive the attention of many economists.This report analyzes the economic performance of countries in the 1970s and 1980s,and shows that countries with stable economies and appropriate and coordinated government policies have achieved better economic performance than those with unstable economies.The World Bank(1993)study on the rapid development of East Asian economies pointed out that macroeconomic stability and rapid export growth are two key factors of virtuous cycles of high capital accumulation rate,effective resource allocation and strong productive growth.And they are the basis for the success of East Asian economies.The importance of macroeconomic stability to the economy and society is self-evident,but macroeconomic instability has not been clearly defined for a long time until the World Bank(1993)regarded budget deficit,external debt and exchange rate instability as factors influencing macroeconomic instability.In addition,the World Bank(1993)defines a country’s macroeconomic stability as having a fixed rate of growth,moderate or low inflation,controlled external debt,and currency management.These aspects have become the main considerations for constructing the macroeconomic instability index.At the same time,according to the different national conditions and development status of each country,the index constructing the macroeconomic instability index is different.In order to measure the level of macroeconomic instability and generate quantitative dynamic indicators,this paper hopes to construct a macroeconomic instability index(MII)to visually reflect the degree of macroeconomic instability.According to the definition of macroeconomic instability by the World Bank and the actual situation in China,this paper selects the inflation rate,the exchange rate change rate,the ratio of budget deficit to GDP,the ratio of foreign debt to GDP,the actual urban unemployment rate,and the difference between import and export trade to generate Chinese MII indicator after processed.And the study selected time range from 1990 to 2017.In the empirical part,this paper examines the mechanism of the macroeconomic instability index for economic growth,using the autoregressive distributed lag(ARDL)and the error correction model(ECM)to study the association between economic growth and MII joining with junior high school enrollment rate,the total labor force growth rate,and the ratio of foreign direct investment to GDP as explanatory variables.It is found that MII has different long-term and short-term effects on economic growth.In the long ran,the negative effect of MII on economic growth is not significant,but its short-term effect on economic growth is significant and cannot be ignored,and it takes 12 months to aggregate to long-term equilibrium.Regardless of long-term or short-term,the junior high school enrollment rate has a significant positive effect on economic growth,and the long-term effect of foreign direct investment ratio is higher than the short-term effect.The total labor force growth rate is not significant when it interacts with other economic variables in economic growth,but it has a significant negative linear correlation with GDP growth rate,which indicates that as the denominator of per capita GDP,the total population increase is also will bring an increase in the total labor force.In addition to economic growth,this paper also examines the impact of MII on private investment,and joins foreign direct investment,urbanization rate,and openness indicators to build a VAR model.The results of impulse response show that foreign direct investment has a driving effect on private investment,and this effect has long-term effects;urbanization rate has a lagging effect on the private investment,but its promotion effect on private investment is long-term;The influence of openness degree on private investment is limited;the macroeconomic instability index has a restraining effect on private investment in the short term,which also proves that a stable macroeconomic environment is important for enhancing private investment.The innovations of this paper are as follows:1)Combining Chinese national conditions,constructing the macroeconomic instability index belonging to China to reflect the stability of the economic operating environment,2)combining macroeconomic certainty or uncertainty factors,policies and market factors,macroeconomic stability is discussed.3)When constructing the index,the original sequence is processed according to the authenticity and comparability of the data,and strive to truly reflect the level of macroeconomic instability in China.This paper still has the following shortcomings:1)Although the macroeconomic instability index is constructed,there is no in-depth study on the interaction mechanism of the composition indicators.How the dynamic changes affect MII still deserve further study,2)There are many factors influencing economic growth,MII only represents the stability of the macroeconomic operating environment,so the mechanism of action can be further examined in subsequent studies,including but not limited to the addition of more explanatory variables and the improvement of research methods.