Abstract

The recent global financial crisis has triggered a large amount of studies on the effects of financial factors on economic fluctuations.This trend has been popular both in the study of business cycle and macroeconomics,and has formed a new field called the Financial Business Cycle（FBC）.FBC introduces financial frictions into DSGE models to analyze the transmission mechanisms of economic fluctuations.In this book,two frontier theoretical issues of FBC,the housing market and the financial intermediary,are taken into China's institutional background,to explore how different sectors with different financial frictions affect China's economic fluctuations.

First,a DSGE framework is formulated to analyze the effect of local government's land finance on economic fluctuations.In the model,the financial frictions faced by the local government and the firms are characterized.Next,a multi-regional DSGE model is established to extend the study on housing prices and economic fluctuations to regional level.Both innerregion and inter-region financial frictions are characterized in the model.

In addition,a DSGE model containing the commercial bank sector is used to characterize the financial frictions faced by the financial intermediary.Frictions are introduced both on the commercial bank's asset end and liability end.Further,the above model is extended to accommodate shadow banking.China's shadow banking differs from western countries in the way that commercial banks still play a core role in it,which implies that it may have its unique dynamics.

Overall,the effects of different sectors and financial frictions on China's economic fluctuations are discussed in the view of FBC as well as under China's institutional background.The findings highlight the role of financial frictions in the transmission of economic fluctuations.With the development of China's financial market and its reform,these effects become even more important.This book sheds light on the combination of financial business cycle studies and China's institutional characteristics,and provides some policy implications for the government.

Key Words:Financial Frictions,Economic Fluctuations,Financial Business Cycles,Housing,Financial Intermediaries