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Policy Shocks and Macroeconomic Fluctuations in a Two‐country Dynamic Stochastic General Equilibrium Model: Evidence from China*
Author(s) -
Ma Yong
Publication year - 2016
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/asej.12083
Subject(s) - economics , dynamic stochastic general equilibrium , business cycle , fiscal policy , china , monetary policy , macroeconomics , bayesian vector autoregression , general equilibrium theory , monetary economics , empirical evidence , bayes estimator , construct (python library) , estimation , bayesian probability , philosophy , management , epistemology , artificial intelligence , political science , computer science , law , programming language
In this paper, we construct a two‐country dynamic stochastic general equilibrium model to investigate the sources of business cycles in China and the contributions of policy shocks in economic fluctuations. The empirical results from Bayesian estimation show that, apart from the traditional supply and demand shocks, monetary and fiscal policy shocks also play important roles in determining China's economic fluctuations. In addition, we find significant feedback effects between monetary and fiscal policies in China, indicating that policy coordination is an important feature of China's monetary and fiscal policies. Overall, these results not only shed new light on the policy factors behind China's economic fluctuations, but also provide new evidence that is helpful for understanding the policy transmission mechanisms in China.