| Summary: | Real economy has always been a crucial component of China’s economic development, while fictitious economy has experienced rapid growth in past decades. As a result, the connection between the real and fictitious economy has become increasingly complex. This study utilized a hierarchical framework for classifying real economy and conducted a hidden causality test and EEMD method to explore a causal relationship between markets. Monthly data from July 2001 to September 2022 were analyzed using a TVP-SV-VAR model to investigate dynamic relationships among the manufacturing, construction, real estate, and financial industries as well as the mechanisms between the real and fictitious economies. The study outcomes demonstrated that the financial and real estate industries have only short-term positive effects on the manufacturing and construction industries, and in the later period of sample intervals, both industries had negative effects on the construction industry. The construction industry in the real economy has already shown a trend of moving “from Real to Virtual”, while the core manufacturing industry in the real economy has not yet exhibited this trend. To prevent the spread of this trend in the real economy, it is necessary to guide the fictitious economy to serve the real economy by regulating its development appropriately. This study offers a novel perspective for examining the real economy and the fictitious economy in China.
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