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.