Financial development and innovation: A DSGE comparison of Chinese and US business cycles
Paul Middleditch () and
Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester
This paper investigates the contrasting business cycle characteristics of China and the US, speci cally in terms of economic activity and total factor productivity. To help explain the differing pro les for these two variables for both countries, we build and estimate a DSGE model with extended financial markets and endogenous technology creation to identify key structural parameters, comparing the decomposition of the shock processes in our analysis. We reveal stark differences in the contributing factors of business cycle fluctuations for both countries, and demonstrate the importance of the stock market for economic recovery after a sizable and persistent financial shock. Macroeconomic intervention in China works well but is unable to smooth total factor productivity (TFP) due to the presence of multiple shocks transmitted through the endogenous technology creation channel. Whilst the US achieves a similar profile for economic activity with less volatility in TFP, it also contends with additional risks, fed in by the existence of the stock market. The stock market allows firms to hedge finance during periods of financial instability, though this is not cost free.
Pages: 39 pages
New Economics Papers: this item is included in nep-cna, nep-dge, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://hummedia.manchester.ac.uk/schools/soss/cgbc ... apers/dpcgbcr244.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:244
Access Statistics for this paper
More papers in Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Marianne Sensier ().