Anticipated Exogenous Shocks and China's Business Cycles
- ZOU Ganna & SUN Rui
- ZOU Ganna (Wuhan University, 430073)SUN Rui (London School of Economics and Political Science)
Expectation is an important factor leading to macroeconomic fluctuations. The impact of shocks on the economy, if the various economic entities can form expectations before the impact, can be very different. In order to better understand the impact of anticipated exogenous shocks on China's business cycle, this paper uses the Search-Matching Model as the analytical framework. Compared with the traditional dynamic stochastic general equilibrium model, the Search-Matching model includes labor market frictions, fitting the employment market in China. At the same time, in order to better estimate the structural parameters in the model, this paper makes Bayesian estimation based on the Chinese quarterly macroeconomic data from 1991 to 2017, and obtains a higher degree of fit than by using the calibration results from existing literature. Through impulse response analysis, we find that the expected wage tax shock can significantly mitigate the negative impact of tax increases on the real economy in the long run. At the same time, the anticipated capital tax shock can also promote the economic cycle in the anticipated stage. The above results show that if the central government can promote the formation of policy expectations and finally implement the policy, it will be very conducive to revitalizing the real economy.
JEL：E24, E32, E62
- Anticipated Exogenous Shocks, Search-Matching Model, Bayesian Estimation, Business Cycle, Frictional Unemployment