DP10028 A DSGE Model of China
|Author(s):||Li Dai, Patrick Minford, Peng Zhou|
|Publication Date:||June 2014|
|Keyword(s):||Bayesian Inference, China, DSGE, Indirect Inference|
|JEL(s):||C11, C15, C18, E27|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10028|
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.