The Dynamic Relationship between China’s Economic Cycle, Government Debt, and Economic Policy

ABSTRACT

Economic growth is an integral part of the Sustainable Development Goals (SDGs), especially SDG 8. We combine 10 economic constraints and build a five-variable (structural vector autoregressive) SVAR model based on China’s time series data of 1978–2017. The empirical results show (1) The Chinese government adopted different economic policies at different stages of reform and opening up;(2) From the impulse response results, China’s excessively high government debt ratio has begun to inhibit economic growth;(3) In terms of policy selection and coordination, the Chinese government mostly adopts a “discretion” adjustment strategy. In most cases, the fiscal and monetary policies were in the same direction, and the “double expansionary” and “double contractionary” policy coordination may become mainstream;(4) The results of variance decomposition showed that both fiscal and monetary policies can effectively regulate economic growth at the present stage, and the contribution rates of exogenous shocks to the prediction variance of economic growth rate were about 25%.