DP10238 A DSGE Model of China

Author(s):	Li Dai, Patrick Minford, Peng Zhou
Publication Date:	November 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=10238

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.