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

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  • Mehrotra, Aaron
  • Nuutilainen, Riikka
  • Pääkkönen, Jenni

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.

Suggested Citation

  • Mehrotra, Aaron & Nuutilainen, Riikka & Pääkkönen, Jenni, 2011. "Changing economic structures and impacts of shocks: evidence from a DSGE for China," BOFIT Discussion Papers 5/2011, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2011_005
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    References listed on IDEAS

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    1. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511-564.
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    More about this item

    Keywords

    DSGE; rebalancing; monetary policy shocks; technology shocks; China;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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