An Empirical Study of the Interactions among Gross Indices of Current China's Macroeconomic Operations

Using Granger's Causality Test and VEC models, this paper explores the dynamic, complex relationships in China's macroeconomic operations by empirically analyzing the interactions among different aggregate indices. The results indicate that price level, economic growth and fixed capital investment significantly interact on each other. In the short run, both fixed capital investment and economic growth have lagged, positive effects on price level. In the long run, fixed capital investment and price level move in a reverse direction, as the current investment is transformed into supply in the future and therefore makes price fall. Moreover, the general monetary supply (M2) also influences price level via fixed capital investment and gross economic output.