Analysis On Institutional Shock’s Effect To China’s Economical Fluctuations

Economical fluctuation plays an essential role in affecting economicaldevelopment, and the transformation of growing style is a main problem in China’seconomical growth. So the reform of economical institutions is becoming more andmore important to China’s economical development gradually. Therefore, it ismeaningful to discuss the relationship between the shock of economical institutionsand economical fluctuations, as well as analyze the mechanism and influences thatinstitutional shocks impact to economical fluctuations in order to choose propereconomical institutions to decrease economical fluctuations and prompt thecontinuous economical growth according to the research above.The paper retrospected the macro-economical fluctuations since1949by usingthe rate of real GDP growth and formed an comprehensive index through fiscalefficiency, investment marketization, trade openness and financial liberalization toanalyze China’s fluctuations of economical institutions. Next, the paper divided allthe consumers into extractive consumers and non-extractive consumers, and formedmicro and macro models of extractive consumers, non-extractive consumers and firmsto illustrate the mechanism that how shocks of economical institutions affectmacro-economy theoretically. Then the paper analyzed how shocks of economicalinstitutions affect macro-economy practically by DSGE model. From the practicalresults we can see the positive shock, same as the improvement of economicalinstitution increased the total production, investment, the level of firm’s wage,encouraged non-extractive consumers to offer more labors, and increased theconsumption of all the extractive and non-extractive consumers. All in all, the positiveshock of economical institution was beneficial to macro-economy. In conclusion, thereform of economical institutions plays an essential role in the macro-economicalgrowth and we should continue the reform of economical institutions.