This paper first uses the Hamilton filter to estimate China's credit cycle and business cycle.Using the TVP-VAR model,we explore the bidirectional interaction mechanism and intrinsic dynamics between China's credit cycle and business cycle.We find that there is a positive"negative feedback mechanism"between the credit cycle and the business cycle,which is largely a result of counter-cyclical monetary policy.The market confidence channel is a significant way in which the credit cycle influences the business cycle,doubling the impact of the credit cycle on the business cycle.Finally,we examine the interaction between monetary policy and macro prudential policy on their respective marginal efficiencies in regulating output and credit.We find that the marginal impact of monetary policy on output and credit weakens when macro prudential policy tightens,while the marginal effect of macro prudential policy on output and credit strengthens during periods of monetary easing.This indicates the necessity of establishing a coordinated and complementary mechanism for the"dual-pillar"policy framework.
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