An Estimated DSGE Model for Business Cycle Analysis in China

Biao Gu (), Jianfeng Wang () and Jingfei Wu ()
Additional contact information
Biao Gu: School of Economics, Shanghai University, Shanghai 200444, China
Jianfeng Wang: Research Center of Applied Finance, University of International Business and Economics, Beijing 100029, China
Jingfei Wu: School of Economics, Shanghai University, Shanghai 200444, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2013, vol. 8, issue 3, 390-429

Abstract: A small-scale, but highly-stylized dynamic stochastic general equilibrium model is estimated by the maximum likelihood method using Chinese quarterly data. Model specifications and parameter equalities between various competing model variants are addressed by formal statistical hypothesis tests, while implications for business cycle fluctuations are evaluated via a variance decomposition experiment, second-moments matching, and some out-of-sample forecast exercises. It is highlighted that the monetary authority takes an aggressive stance to the current inflation pressure (there is a significant lagged response), while leaving less attention to changes in aggregate output. Variance decomposition reveals that large percentages of variations in real and nominal variables are explained by the highly volatile preference and potential output shock, respectively. When nominal and real frictions as well as additional shocks are included, overall our estimated model can successfully reproduce the stylized facts from actual data of Chinese business cycles and frequently can even outperform those forecasts from an unconstrained VAR.

Keywords: business cycle analysis; Chinese economy; DSGE model; interest rate rule (search for similar items in EconPapers)
JEL-codes: C52 E32 E52 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0020-0 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fec:journl:v:8:y:2013:i:3:p:390-429

Access Statistics for this article

Frontiers of Economics in China-Selected Publications from Chinese Universities is currently edited by LONG Jie

More articles in Frontiers of Economics in China-Selected Publications from Chinese Universities from Higher Education Press
Bibliographic data for series maintained by Frank H. Liu ().