Changing economic structures and impacts of shocks — evidence from a DSGE model for China

BOFIT Discussion Papers
Changing economic structures and impacts of shocks — evidence from a DSGE model for China
5/2011
Author(s):
Aaron Mehrotra, Riikka Nuutilainen and Jenni Pääkkönen
2011. 27 pages / sivua.
Publisher:
Suomen Pankki - Finlands Bank
ISBN:
978-952- 462-700-9
(Web publication)

Published in: Pacific Economic Review, Volume 18, Issue 1, February 2013, pp. 92-107

Abstract

We construct a small-scale dynamic stochastic general equilibrium (DSGE) model that features price rigidities, habit formation in consumption and costs in capital adjustment, and calibrate the model with data for the Chinese economy. Our interest centers on the impact of technology and monetary policy shocks for different structures of the Chinese economy. In particular, we evaluate how a rebalancing of the economy from investment-led to consumption-led growth would affect the economic dynamics after a shock occurs. Our findings suggest that a rebalancing would reduce the volatility of the real economy in the event of a technology shock, which provides support for policies aiming to increase the consumption share in China.