THE CORRELATION BETWEEN THE FINANCIAL CYCLE AND BUSINESS CYCLE: EVIDENCE FROM CHINA AT DIFFERENT EVENT PERIODS

This paper uses EMD method to construct the structural components of the financial cycle and business cycle and analyzes their lead-lag relationships and dynamic correlation mechanism at three specific periods (2008Q3, 2012Q3, and 2017Q3). We find that during the period of the financial crisis, financial cyclical fluctuations precede business cyclical fluctuations; during the period of the new normal of the economy, the peaks and valleys of the financial cycle and the business cycle are the same; during the period of strong financial supervision, the business cycle precedes the financial cycle. Furthermore, compared with the other two periods, the negative effects of financial shocks during the period of strong financial supervision are largest, the spillover effect of the financial cycle on the business cycle is strongest.