Navigating Structural Shocks: Bayesian Dynamic Stochastic General Equilibrium Approaches to Forecasting Macroeconomic Stability

Dongxue Wang and Yugang He ()
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Dongxue Wang: College of Economics and Management, Kashi University, Kashi 844000, China
Yugang He: Department of Chinese Trade and Commerce, Sejong University, Seoul 05006, Republic of Korea

Mathematics, 2025, vol. 13, issue 14, 1-25

Abstract: This study employs a dynamic stochastic general equilibrium model with Bayesian estimation to rigorously evaluate China’s macroeconomic responses to cost-push, monetary policy, and foreign income shocks. This analysis leverages quarterly data from 2000 to 2024, focusing on critical variables such as the output gap, inflation, interest rates, exchange rates, consumption, investment, and employment. The results demonstrate significant social welfare losses primarily arising from persistent inflation and output volatility due to domestic structural rigidities and global market dependencies. Monetary policy interventions effectively moderate short-term volatility but induce welfare costs if overly restrictive. The findings underscore the necessity of targeted structural reforms to enhance economic flexibility, balanced monetary policy to mitigate aggressive interventions, and diversified economic strategies to reduce external vulnerability. These insights contribute novel policy perspectives for enhancing China’s macroeconomic stability and resilience.

Keywords: dynamic stochastic general equilibrium; Bayesian estimation; structural rigidities; social welfare loss (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2025
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