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Economic fluctuations, volatility changes and the role of government spending in China: A structural analysis
Author(s) -
Hsu Minchung,
Lee Junsang,
Zhao Min
Publication year - 2020
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12302
Subject(s) - economics , total factor productivity , volatility (finance) , counterfactual thinking , government spending , great moderation , econometrics , china , macroeconomics , relative price , productivity , monetary economics , welfare , market economy , philosophy , political science , law , epistemology
We study the economic fluctuations in China by using a standard neoclassical general equilibrium model to provide a structural analysis. We have carefully constructed measurements for economic variables from Chinese data to be consistent with the literature. We show that the government spending behaviour plays an important role in accounting for the changes in the pattern of both absolute and relative volatilities. Although we find that a general moderation in economic fluctuations after 1978 can be largely explained by the total factor productivity (TFP) process, TFP itself cannot explain the change in the pattern of relative volatilities. We show that policy changes in government spending can account for the relative volatility divergency. Counterfactual experiments are also provided to discover the role of each factor in explaining the economic fluctuations in China.