Changing Economic Structures and Impacts of Shocks: Evidence from a Dynamic Stochastic General Equilibrium Model for China |
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Authors: | Aaron Mehrotra Riikka Nuutilainen Jenni Pääkkönen |
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Affiliation: | 1. Bank of Finland Institute for Economies in Transition;2. University of Oulu, Bank of Finland Institute for Economies in Transition;3. Government Institute for Economic Research (VATT) |
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Abstract: | We present a small‐scale dynamic stochastic general equilibrium model that features price rigidities, habit formation in consumption and costs in capital adjustment. We estimate the key parameters and calibrate the model with data for the Chinese economy. Our interest centres 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. |
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Keywords: | E52 E60 |
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