Business Cycle Accounting For The Chinese Economy

The authors evaluate sources of business cycle fluctuations in China after 1978 with business cycle accounting method developed by Chari, Kehoe, and McGrattan (2007). They find that efficiency wedge, which represents institutional change and technology advance, was the main source of economic fluctuations in 1978 - 2006. The amplitude of it fluctuation declined after 1992, which resulted in moderation of business cycle fluctuations. They also find that distortions manifest themselves as taxes on investment, which represents frictions in the capital market, became another economic fluctuation source after 1992, which is different from results of business cycle accounting on US and Japan data.