The Macroeconmic Effects Of Disaster Risk And The Choices Of Policies

Rare disasters usually contain financial crises,wars,natural disasters and epidemic diseases.Although the probability of occurrence is extremely small,they can cause serious losses once they happen.With economic globalization,foreign catastrophic events have an indirect butnon-negligible impact on economy in China,such as the US subprime mortgage crisis.Rare disasters in China,such as Wenchuan earthquake,have direct and serious impact on our economy.Nowadays,the primary task of China’s economic development is to maintain stable and rapideconomic development,so exploring the impact of rare disasters on macroeconomic is undoubtedly of great significance.The current studies on rare disasters mainly focus on equity premium,only a few literatures study the impact of disaster on macroeconomic.It is both theoretically and practically meaningful to study the impact of catastrophic events and explore a sound macroeconomic emergency policy.At present,China’s monetary policy tool rules are mainly divided into money supply rule and interest rate rule,while the fiscal rules mainly include tax rule and government expenditure rule.In the face of disasters,which kind of policy rules should China adopt?How rare disasters affect macroeconomic under different policy rules?Which policy rules are most effective?Based on domestic and international literatures,this paper studies the monetary policy tools and financial rules under rare disasters.Firstly,we establish dynamic stochastic general equilibrium model,introducing disaster risk by two-state Markov transition matrix,and analyze the effects of disaster risk on macroeconomic variables under elastic price and sticky price.Secondly,based on the above-mentioned viscous model,we introduce money supply rule and interest rate rule,analyzing the macroeconomic effects of disasters under different rules.Thirdly,this paper constructs a New Keynesian dynamic stochastic general equilibrium model with optimal monetary policy tools,introduces the financial expenditure rules and tax rules,and then compares the macroeconomic effects of disasters under different rules,trying to find the optimal fiscal rule.After empirical analysis,the following conclusions are obtained:First,the impact of disaster shocks on major macroeconomic variables is not exactly the same under different price assumptions.Disaster shocks lead to lower output,consumption,investment,and capital stock at both elastic and sticky prices,but the effects of disaster shock on labor and wages are not the same.At the elastic price,labor and wages fall,but at sticky prices,labor and wages increase.Second,under rare disasters,the interest rate rule is superior to the money supply rule.By comparing the impulse response graphs of disaster shocks under different rules,we find that when the economic system encounters a disaster shock,the real economy is less affected by the disaster under the interest rate rule than the money supply rule.In addition,by calculating the loss of social welfare,the interest rate rule is better than the money supply rule.Thirdly,the tax rule is more effective than the expenditure rule under a disaster shock from the perspective of welfare loss.It means the welfare loss caused by a disaster under the tax rule is less than that under the expenditure rule.In addition,the impact of catastrophes under government spending rules and tax rules have led to negative fluctuations in output and consumption,positive fluctuations.in the proportion of government deficits and inflation.However,the effects of disaster shocks on investments under different financial rules are different.Under the rule of taxation,the disaster shock has caused the investment to fluctuate negatively.But under the rule of expenditure,the disaster shock has caused the investment to fluctuate negatively at first and then positively.