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Sectoral shocks, production linkages, and business cycles in China11We sincerely thank the associate editor, Kang Shi, and two anonymous referees for their invaluable suggestions and comments. Their contributions have been truly significant to this project. Any remaining errors are ours

Author

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  • Jiang, Lunan
  • Kim, Young Sik
  • Zhang, Lin

Abstract

This paper develops a dynamic multisector model to examine the contribution of sectoral productivity shocks and input-output linkages to the dynamics of the Chinese economy. Our baseline simulations replicate the volatility and comovement in the data fairly well. More importantly, we show that the idiosyncratic components of sectoral productivity shocks together with the production linkages are the primary drivers of volatility and comovement, while the common components of sectoral productivity shocks mainly result in resource reallocation across sectors through substitution effects. The sensitivity analysis highlights the importance of elasticity-of-substitution parameters. Finally, the share of state-owned enterprises in each sector is shown to have significant impact on the aggregate volatility.

Suggested Citation

  • Jiang, Lunan & Kim, Young Sik & Zhang, Lin, 2024. "Sectoral shocks, production linkages, and business cycles in China11We sincerely thank the associate editor, Kang Shi, and two anonymous referees for their invaluable suggestions and comments. Their c," China Economic Review, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:chieco:v:87:y:2024:i:c:s1043951x24001007
    DOI: 10.1016/j.chieco.2024.102211
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic multisector model; Input-output; Aggregate fluctuation; Sector interaction; State-owned enterprises; Chinese economy;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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