Business Cycle Asymmetry in China: Evidence from Friedman’s Plucking Model
Tingguo Zheng, Yujuan Teng, Tao Song
China & World Economy
#002127 20131014 (published) Views:150
Friedman’s plucking model of business fluctuations suggests that output cannot exceed an upper limit, or ceiling level, but it is occasionally plucked downward, with depth and steepness, due to recessions. This paper investigates China’s business fluctuations using the quarterly real GDP data over the period 1978-2009. Our results provide some support for the plucking model. We find that there exists the ceiling effect of real output, and the negative asymmetric shocks affect the transitory component significantly, which therefore captures the plucking downward behavior during the recession from the idea of Friedman. In addition, it is also suggested by the results that the basic asymmetric UC model is not appropriate for directly modeling China’s real output since the business cycle is inaccurately measured, but it works quite well when considering a structural break at 1992:Q2.
Keywords: business cycle; plucking model; asymmetry; regime switching; structural break