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The intermittent institutional innovation and China's economic fluctuations: a calibrated model and a dynamic analysis

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  • Ninghua Sun
  • Lei Zeng

Abstract

Purpose - China's economic transition is essentially the process of China's institutional changes. During the changes, the appearance of institutional innovation is not regular; instead, it is intermittent and random. The purpose of this paper is to show that the fitful appearance of institutional innovation is the root of China's economic growth and fluctuations. Design/methodology/approach - This paper constructs a real business cycle (RBC) model introducing the institutional factor expressed in the quantitative form under the dynamic stochastic general equilibrium (DSGE) framework by measuring China's institutional changes quantitatively. Findings - By comparing the characteristics of the actual economic data with those of the simulated economic data, we find that this RBC model can explain 94.44%, 66.07%, 23.46%, 21.03% and 15.45% of the cyclical fluctuations in output, investment, labor, consumption and capital, respectively. Originality/value - The impulse response analysis finds that the institutional shocks have a relatively long duration, lasting about 30 years, and decline slowly over time, while technological shocks decline relatively fast, lasting approximately ten years.

Suggested Citation

  • Ninghua Sun & Lei Zeng, 2022. "The intermittent institutional innovation and China's economic fluctuations: a calibrated model and a dynamic analysis," China Political Economy, Emerald Group Publishing Limited, vol. 5(2), pages 196-214, August.
    • Handle: RePEc:eme:cpepps:cpe-05-2022-0006
    DOI: 10.1108/CPE-05-2022-0006
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