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Is finance a veil? Lead‐and‐lag relationship between financial and business cycles: The case of China
Author(s) -
Shen ChungHua,
Shi JunGuo,
Wu MengWen
Publication year - 2019
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12193
Subject(s) - lag , economics , china , panel data , equity (law) , lead–lag compensator , business cycle , gross domestic product , distributed lag , monetary economics , financial system , finance , econometrics , macroeconomics , computer network , control engineering , computer science , political science , law , engineering
This study examines the lead‐and‐lag relationship between financial cycles (FCs) and business cycles (BCs) by using Chinese provincial data. We construct FCs of the financial sector on the basis of three financial variables: credit‐to‐GDP (gross domestic product) ratios, house prices, and equity prices. We use the panel dynamic logit model to investigate the lead‐and‐lag effect between two sectors. Results show that each province has its own unique FCs and BCs. Hence, financial policies should be different in dissimilar provinces. Next, we find that FCs lead BCs and not vice versa. Furthermore, the leading effect is stronger in rich provinces than in poor areas.