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

Aaron Mehrotra, Riikka Nuutilainen and Jenni Pääkkönen

No 5/2011, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

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.

Keywords: DSGE; rebalancing; monetary policy shocks; technology shocks; China (search for similar items in EconPapers)
JEL-codes: E52 E60 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2011_005

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