Abstract

The economic fluctuation in China has a stable trend with the smoothing world business cycle volatility. By constructing an equilibrium model in products markets under the intervention of monetary policies, the paper makes the factor decomposition of China’s real output volatility and shows that the real output volatility is due to demand shock, supply shock and money shock. By measuring the variance sequences of these economic shocks, the paper makes a regression test of shock variance sequences and finds that the decrease of business cycle volatility is mainly due to the gradual stabilization of demand shock and money shock. Supply shock has no significant effects on real output volatility. Therefore, macro-economic control in China should adhere to the policy orientation of demand management in order to maintain the sustainable and stable economic growth.

Key words

Business Cycle; Demand Shock; Supply Shock; Money Shock

        DOI: https://doi.org/10.16538/j.cnki.jfe.2009.11.003