Monetary Shocks, Adjustment Costs And China’s Business Fluctuations Based On Bayesian DSGE Model

After China’s reform and opening-up policies were launched, China’s macro economy has high speed development, the average annual GDP growth rate is as high as 9.8%. But The thirty years since 1978, China economy has grown continuously but also is full of ups and downs. The GDP growth rate was as high as 15.2% in 1984, but in 1989 it fell to the lowest point of 4.1%, which is less more than 11.1%. With so large fluctuations, we can not help thinking: what caused China’s economic fluctuation? It is the answer to this question that contributed to the research of this paper.Macro economists think that economic fluctuation is caused by technology shocks, monetary shock and so on. These exogenous shocks in the economy affect all macroeconomic variables, which is the economic fluctuations we see. From the perspective of modern macroeconomics, this article wanted to have a research of China’s economic shocks and fluctuations. This paper analyzes the actual data of China, then the typical facts of economic fluctuation in our country are summarized. After that, this paper builds a DSGE model as an analysis tool. There are three departments in the model:family, business department and monetary authorities. We add money demand shocks and monetary policy into the model, and intermediate products manufacturing enterprises has adjustment cost. We used Bayesian method to estimate the model’s parameters. This method can make full use of all information contained in the observed variables and the existing research results (the prior information), so we can get higher quality estimated model. Through the analysis we can know that the effect of different shocks have different impact on economic variables in the model. Therefore, with the impulse response we can qualitatively know the effects of different shocks on economic fluctuation, so we can analyze the impact which is the relative key, which allows us to understand the inner mechanism of this phenomenon behind the economic fluctuation.Through qualitative and quantitative analysis, this paper obtained the following main conclusions. The impact of technology shocks and monetary policy shocks on the economy is bigger than the impact of consumption demand shocks and money demand, which is bigger than the impact of money demand shocks. What’s more, impact of technology shocks, consumption demand shocks, monetary demand shocks on the economic is more persistent than that of the monetary policy shocks.Since 1978 when the reform and opening up started, long-term economic fluctuation is more due to the technology shock, and the monetary policy shock caused transient impact.