Research On The Relationship Between Government Expenses And The Fluctuation Of Out-Put With Us And China

Through the research on the representative macroeconomic indicator—real GDP, we found that there had a sharp fluctuation in both US and China. Economic fluctuations will affect the residents’living standard, drastic economic fluctuations even lead to serious social problems as well as global turmoil.DSGE (Dynamic Stochastic General Equilibrium) model begins at the research on macroeconomic fluctuations. Traditional macroeconomic models are subjected to the Lucas critique because they lack micro-foundation,while DSGE models combine micro-economic analysis and macroeconomic analysis together. It is based on rigorous general equilibrium theory, considering the micro-economic decisions of the demand and supply sides, portraying their optimal decision in respective constraints.Then we sum the behavioral makings decided by each of the microscopic agents.Finally, we can calculate the key variables which have important influence on the microscopic agents by making use of the market-clearing conditions.First of all, this paper introduces the hybrid model of Ireland(2005) which is based on the two-sectors DSGE model established by Hansen (1985) and Rogerson(1988) Then,we also introduce the pretreatment process and the method of solving the DSGE model, as well as commonly used parameter estimation method:calibration method, maximum likelihood estimation and the Bayesian estimation. Secondly, we introduce two different forms of effective consumption functions into the US and China’s model.Then we construct three-sectors DSGE model which containing government departments in order to research on the impact of government consumption to total output. Finally, parameter estimation by using maximum likelihood estimation with the two-department hybrid model and do some comparative analysis of important parameters.For the three-department model, some parameters use calibration method to be estimated and the remaining parameters use the Bayesian estimation method. Research on the different impact of government consumption and technical level for each observation variables between the US and China.As the results of three-department model estimation show, consumption has the strongest auto-correlation and investment has the weakest auto-correlation. The results also show that the continuous effect of Chinese technology shocks is weaker than the US, but the continuous impact of the Chinese government’s consumption is stronger than the US.