Three Essays on Macroeconomic

This thesis consists of three essays on macroeconomics. The first essay investigates Chinese real business cycle (RBC). I first found that Chinese real business cycle exhibits a unique pattern, which is characterized by moderate consumption volatility, substantially low investment volatility, and acyclical trade balance. These features are quite different from business cycles in other emerging markets and cannot be explained by existing emerging market RBC theories. Motivated by the facts that China undertook dramatic and persistent reform on state-owned enterprises (SOE) in the last 30 years, I construct a full-fledged general equilibrium model with SOE sector and show that the model does a fairly good job in accounting for the above features. The two main driving forces are: (1) shock to the share of downstream SOE in manufacturing sectors and (2) shock to upstream SOE's monopolistic position. These two shocks can explain 85 percent of output volatility, 79 percent of consumption volatility, 72 percent of investment volatility, and 57 percent of the volatility of trade balance-to-output ratio. Relatively speaking, standard shocks such as permanent productivity shock, credit shocks, country risk premium shocks, and preference shocks are less important in explaining Chinese economic fluctuations. Our results show that Chinese RBC may be affected substantially by domestic policies.;The second essay investigates the effect of position of global value chain in explaining business cycle synchronization. It first brings up two measures of position in global value chain and then provides empirical evidences. The main finding in this paper is that similarity of position in global value chain have a sizable and positive effect on business cycle synchronization. In addition, I also found that upstream country usually lead international business cycle. The finding is robust to a large set of control variables and several variations in model specification. The findings provide a empirical guidance on the further theoretical work.;The third essay tries to provide a new perspective to look into China's current account. At the core of mode is that China's government can implement distortionary policy to obtain cheaper credit to invest than private firms. As government invests more, the economy-wide rate of return on capital decline and capital flow out of country. This result holds for both transitory and permanent decline in distortionary rate of capital which lends to government. More capital is allocated to construction sector and less to other private sector. The rate of return in private sector increases due to this allocation effect. In terms of welfare, this essay suggests that more distortionary government policy is, the larger welfare loss is. It also suggests that rise in current account in China is temporary no matter the policy is transitory or permanent and does not need policy correction. The policy design should focus on the welfare loss instead.