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Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

Postal Subscription Code 80-978

Front Econ Chin    2013, Vol. 8 Issue (3) : 390-429    https://doi.org/10.3868/s060-002-013-0020-0
research-article |
An Estimated DSGE Model for Business Cycle Analysis in China
Biao Gu1(), Jianfeng Wang2(), Jingfei Wu3()
1. School of Economics, Shanghai University, Shanghai 200444, China; 2. Research Center of Applied Finance, University of International Business and Economics, Beijing 100029, China; 3. School of Economics, Shanghai University, Shanghai 200444, China
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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     
Corresponding Authors: Biao Gu,Email:billgu@shu.edu.cn; Jianfeng Wang,Email:wjfruc@126.com; Jingfei Wu,Email:afeiwu@126.com   
Issue Date: 05 September 2013
 Cite this article:   
Biao Gu,Jianfeng Wang,Jingfei Wu. An Estimated DSGE Model for Business Cycle Analysis in China[J]. Front Econ Chin, 2013, 8(3): 390-429.
 URL:  
http://academic.hep.com.cn/fec/EN/10.3868/s060-002-013-0020-0
http://academic.hep.com.cn/fec/EN/Y2013/V8/I3/390
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