The time-varying characteristics of the Chinese financial cycle and impact from the United States

ABSTRACT

Although there have been many empirical studies about the financial cycle since the financial crisis of 2008, few have analysed the structural changes in the Chinese financial cycle over time. The Chinese financial development process is short, and it is difficult to obtain accurate results on the measurement of the financial cycle. Based on wavelet analysis, this paper analyzes the time-varying characteristics of the Chinese financial cycle and the relationship between the financial and business cycles. In addition, we measure the impact from the United States. This paper draws three conclusions. Firstly, in terms of the characteristics of cycles, the existence of Chinese business cycle and financial cycle is proved, while the credit cycle, leverage cycle, stock market cycle and property cycle are quite different. Specifically, China has a 5.8-year credit cycle, an 8-year stock market cycle, 3.4-year and 12-year business cycles and a 15-year leverage cycle. Secondly, the financial cycles can serve as leading indicators of the business cycle, though the relationships between them are change overtime. Finally, the United States has a significant impact on the Chinese financial cycle with a ‘decoupling-recoupling’ effect, which is mainly reflected in the leverage cycle and the stock market cycle.

KEYWORDS:

• Time-varying characteristics
• wavelet analysis
• financial cycle
• business cycle

JEL CLASSIFICATION:

• C49
• E32
• E44

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Social Science Fundation of China under Grant No. 17ZDA074 ‘Research on Systematic Risk Prevention System Based on Structural Data Analysis’; and the National Natural Science Foundation of China under Grant No. 71873070 ‘Research on China’s Financial Systemic Risk Measurement and Evolution Law Based on Big Data’.