Changing Economic Structures and Impacts of Shocks - Evidence from a DSGE Model for China

27 Pages Posted: 3 May 2011

See all articles by Aaron N. Mehrotra

Aaron N. Mehrotra

Bank for International Settlements (BIS)

Riikka Nuutilainen

Bank of Finland - Institute for Economies in Transition (BOFIT)

Jenni Paakkonen

Government of the Republic of Finland - VATT Institute for Economic Research; Bank of Finland - Institute for Economies in Transition (BOFIT)

Date Written: April 4, 2011

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

JEL Classification: E52, E60

Suggested Citation

Mehrotra, Aaron N. and Nuutilainen, Riikka and Paakkonen, Jenni, Changing Economic Structures and Impacts of Shocks - Evidence from a DSGE Model for China (April 4, 2011). BOFIT Discussion Paper No. 5/2011, Available at SSRN: https://ssrn.com/abstract=1825111 or http://dx.doi.org/10.2139/ssrn.1825111

Aaron N. Mehrotra (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Riikka Nuutilainen

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Helsinki 00101
Finland

Jenni Paakkonen

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Bank of Finland - Institute for Economies in Transition (BOFIT)

PO Box 160
Helsinki 00101
Finland

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