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A DSGE Model of China

Author

Listed:
  • Dai, Li
  • Minford, Patrick

    () (Cardiff Business School)

  • Zhou, Peng

    () (Cardiff Business School)

Abstract

We use available methods for testing macro models to evaluate a model of China over the period from Deng Xiaoping’s reforms up until the crisis period. Bayesian ranking methods are heavily influenced by controversial priors on the degree of price/wage rigidity. When the overall models are tested by Likelihood or Indirect Inference methods, the New Keynesian model is rejected in favour of one with a fair-sized competitive product market sector. This model behaves quite a lot more ‘flexibly’ than the New Keynesian.

Suggested Citation

  • Dai, Li & Minford, Patrick & Zhou, Peng, 2014. "A DSGE Model of China," Cardiff Economics Working Papers E2014/4, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2014/4
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    References listed on IDEAS

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    1. Huw Dixon & Engin Kara, 2011. "Taking Multi-Sector Dynamic General Equilibrium Models to the Data," Koç University-TUSIAD Economic Research Forum Working Papers 1125, Koc University-TUSIAD Economic Research Forum.
    2. Canova, Fabio & Sala, Luca, 2009. "Back to square one: Identification issues in DSGE models," Journal of Monetary Economics, Elsevier, pages 431-449.
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    6. Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael, 2010. "The 'Puzzles' methodology: En route to Indirect Inference?," Economic Modelling, Elsevier, pages 1417-1428.
    7. Meenagh, David & Minford, Patrick & Wickens, Michael, 2012. "Testing macroeconomic models by indirect inference on unfiltered data," Cardiff Economics Working Papers E2012/17, Cardiff University, Cardiff Business School, Economics Section.
    8. Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Rafael, 2007. "On the Fit of New Keynesian Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 123-143, April.
    9. McCallum, Bennett T, 1976. "Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates," Econometrica, Econometric Society, vol. 44(1), pages 43-52, January.
    10. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, pages 586-606.
    11. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2012. "Testing DSGE models by Indirect inference and other methods: some Monte Carlo experiments," Cardiff Economics Working Papers E2012/15, Cardiff University, Cardiff Business School, Economics Section.
    12. Vo Le & Kent Matthews & David Meenagh & Patrick Minford & Zhiguo Xiao, 2014. "Banking and the Macroeconomy in China: A Banking Crisis Deferred?," Open Economies Review, Springer, pages 123-161.
    13. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2011. "How much nominal rigidity is there in the US economy? Testing a new Keynesian DSGE model using indirect inference," Journal of Economic Dynamics and Control, Elsevier, pages 2078-2104.
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    Cited by:

    1. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2015. "Small sample performance of indirect inference on DSGE models," Cardiff Economics Working Papers E2015/2, Cardiff University, Cardiff Business School, Economics Section.
    2. David Collie, 2012. "Immiserizing Growth and the Metzler Paradox in the Ricardian Model," International Economic Journal, Taylor & Francis Journals, vol. 26(1), pages 141-154, November.
    3. Vo Phuong Mai Le & David Meenagh & Patrick Minford & Michael Wickens & Yongdeng Xu, 2016. "Testing Macro Models by Indirect Inference: A Survey for Users," Open Economies Review, Springer, pages 1-38.
    4. Patrick Minford, 2010. "The Banking Crisis: A Rational Interpretation," Political Studies Review, Political Studies Association, vol. 8(1), pages 40-54.

    More about this item

    Keywords

    China; DSGE; Bayesian Inference; Indirect Inference;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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