Working Paper: NBER ID: w16154
Authors: Chadwick C. Curtis; Mark Nelson
Abstract: Can standard business-cycle methodology be applied to China? In this chapter, we address this question by examining the macroeconomic time series and identifying dimensions in which China differs from economies (such as Canada and the U.S.) that are typically the subject of business-cycle research. We show that naively applying the standard business-cycle tools to China is no more ridiculous than applying it to Canada, although the dimensions along which the model struggles is different. For China, the model cannot account for the low level of consumption (or high saving) as a proportion of income observed in the data. An examination of provincial level consumption data suggests that the absence of channels for intranational consumption risk sharing may be an important reason why the business-cycle model has trouble accounting for Chinese consumption and saving behavior.
Keywords: business cycles; consumption; risk sharing; China
JEL Codes: E21; E32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of intranational consumption risk-sharing (E21) | low levels of consumption (E21) |
| absence of intranational consumption risk-sharing (E21) | high saving rates (D14) |
| low degree of risk-sharing across Chinese provinces (D39) | strong precautionary saving motive (E21) |
| strong precautionary saving motive (E21) | high household saving rates (D14) |
| absence of intranational consumption risk-sharing (E21) | increased precautionary savings (E21) |
| business cycle model application to China (F47) | comparable performance to Canada (O51) |
| business cycle model (E37) | inadequately explains household consumption behavior (D10) |