An Empirical Study on Aggregate Supply Shocks,Aggregate Demand Shocks and Economic Fluctuations in China

This paper builds up AD-AS model based on BQ long run constraint using output and price quarterly data from the 1 quarter of 1994 to the 2 quarter of 2012,in order to analyze the effect of supply and demand shocks on Chinese economic fluctuations,and check the impulse response of economic growth and price to supply and demand shocks.The empirical study finds that the aggregate supply and aggregate demand's standard deviation is large,and the aggregate demand shock's standard deviation is larger,which shows there exists economy fluctuation in the sample period.Impulse response analysis shows that,supply shocks have positive permanent effects on output,and aggregate demand shocks have positive short effects on output.For the price,supply shocks have negative permanent effects and demand shocks have positive permanent effects.Since 2011,China's economic growth continues to slow,mainly because of negative supply and demand shocks;what's more the negative impact of the supply shock is more significant.