The Measurement and Characteristics of China's Financial Cycle and its Application of “Early Warning”

Starting from the interaction between the US real estate market and credit supply before and after the subprime crisis, this paper analyzes the fluctuation characteristics of GDP and CPI in the US from 1995 to 2022, and finds that excessive prosperity of financial factors will lead to macroeconomic recession. Similarly, this paper analyzes the fluctuation characteristics of China's GDP and CPI in the same period, and also finds that financial factors are particularly important for preventing systemic financial risks and maintaining macroeconomic stability. In order to comprehensively measure the financial situation in a period of time, this paper measures China's financial cycle based on financial factors. It is found that China's financial cycle has the following characteristics: first, the average length is 11 to 15 quarters, which is longer than the business cycle, and the amplitude is larger, but the absolute value is smaller than that of European and American countries; second, the length and amplitude depend on the policy stage and are closely related to the macroeconomic operation; third, although there is a certain asymmetry in the fluctuation, but it is not obvious, which is different from European and American countries to some extent. In addition, this paper finds that the financial cycle has a strong “early warning” effect on macroeconomic operation, and as a threshold variable, it can “capture” the vast majority of macroeconomic fluctuations after the Asian financial crisis to the COVID-19 epidemic in China, and has strong macro-control application value.