The Measurement and Characteristic Analysis of the Chinese Financial Cycle

Siyuan Qiu ()
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Siyuan Qiu: School of Economics and Management, Shanghai Maritime University, Shanghai 201306, China

IJFS, 2025, vol. 13, issue 4, 1-22

Abstract: In this paper, based on Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model, five financial serials are dynamically weighted, and then China’s Financial Conditions Index is synthesized to measure China’s financial cycle. After that, using the monthly data of 2000–2023 as sample space, this paper utilizes the Markov Switching (MS) model to analyze the characteristics of China’s financial cycle and to investigate the four-zone system. Then, the Vector Autoregression (VAR) model focuses on investigating the macroeconomic effects of China’s financial cycle. The findings are as follows: Firstly, the dynamic weighting approach based on GARCH model is more suitable for valuating China’s financial cycle. Secondly, China’s financial cycle has a strong inertia at the state of transition and the imbalance of China’s overall financial situation is very common. Additionally, China’s financial cycle is distinctly characterized by the double asymmetry of fewer contractions and more expansions, shorter expansions, and longer expansions. Thirdly, China’s financial expansion offers a nine-month short-term stimulus to output and exerts lasting upward pressure on prices.

Keywords: financial cycle; FCI; GARCH model; MS model; macroeconomic effects (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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