Abstract: It is of great significance to measure China's financial cycle reasonably and to accurately grasp its characteristics and economic impact for maintaining national financial security and keeping the economy running smoothly. A new method for China's financial cycle measurement is provided. On the basis of GARCH model, this paper dynamically weights the gap values of M2, housing price, stock price, interest rate and exchange rate to synthesize China's Financial Condition Index and uses it to measure China's financial cycle. According to it, the nonlinear characteristics of China's financial cycle analyzed by using Markov-Switching model and investigates the four-zone system for the first time. Furthermore, VAR model is used to investigate the macroeconomic effects of China's financial cycle. The results show that:Firstly, the relative importance of the variables used to synthesize China's FCI changes over time.To measure financial cycle in China, the dynamic weighting method based on GARCH model is superior to many existing methods. Secondly, China's financial cycle has a strong inertia in state transition. At the same time, China's financial cycle has asymmetric characteristics of more expansion and less contraction and of long expansion and short contraction. Moreover, imbalance in China's overall financial situation is very common. Thirdly, the effect of China's financial expansion on output is only a short-term stimulus for 10 months, while it has a lasting impact on price rising.

Key words: financial cycle, FCI, GARCH model, MS model, Macroeconomic effects