Quantitative Analysis Of Economic Fluctuations In China With Adjustment Cost

After China's reform and opening-up policies were launched,China's economy has got remarking high-speed development.But in the past thirty years,China has seen both economic growth and economic fluctuations.The GDP growth rate was as high as 15.4%in 1993Q1,but in 2009Q1 it fell to the lowest point of 6.2%.We cannot help thinking:what caused China's economic fluctuation?Economists think that fluctuation is caused by shocks,such as technology shock,demand shocks,monetary shocks and so on.These exogenous shocks affect all macroeconomic variables,which are called fluctuations.The government has take steps to moderate economic fluctuations.The most typical fact is that our government implemented huge amounts of fiscal expansion plan with up to four trillion and issued a relaxed monetary policy when the global financial crisis in 2008 threatened to China's economics growth.China maintains positive fiscal policy and prudent monetary policy in recently years.Prudent monetary policy has notable effect on stimulating domestic demand and moderate economic fluctuations.We cannot help thinking:which monetary policy tool is the most suitable tool to our economy?This paper develops a dynamic stochastic general equilibrium model to investigate the problem of China's economic fluctuations with three adjustment cost(price adjustment cost,capital adjustment cost and employment adjustment cost)and four exogenous shocks(technology shocks,monetary demand shocks,consumption preference shocks and money supply policy shocks)from the new Keynesian point of view,then compare two monetary policy rules based on economic fluctuations from 1996-2015.The model consists of four departments:household,final-goods-producing firm,intermediate-goods-producing firm and government.We add three adjustment cost into the model in order to analyze variables fluctuations after shocks with different adjustment cost and key shocks.Then we can choose the optimal monetary policy tool(quantitative monetary policy and price-based policy)based on the study of key shocks and adjustment cost,which is important to monetary policy implement and sustainable economic growth.According to the results,we get following findings:adjustment costs are important features of our economy and have an effect on restraining the economy boom and easing recessions.Monetary demand shocks and consumption preference shocks affects more widely than technology shocks and monetary policy shocks whether long term or short term.Since society welfare loss under interest rate rule is less then under money supply rule,interest rate rule is the optimal monetary policy tool.