The Macroeconomic Effect of Disaster Shocks in MRS-DSGE Models

Shangfeng Zhang; Siwa Xu; Xiaohui Luo; Yue Sun; Yinan Yang; Bing Xu

doi:10.20965/jaciii.2018.p1009

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JACIII Vol.22 No.7 pp. 1009-1015

doi: 10.20965/jaciii.2018.p1009

(2018)

Paper:

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The Macroeconomic Effect of Disaster Shocks in MRS-DSGE Models

Shangfeng Zhang^, Siwa Xu^, Xiaohui Luo^, Yue Sun^, Yinan Yang^**,†, and Bing Xu^*

^*College of Statistics and Mathematics, Zhejiang Gongshang University
18 Xuezheng Street, Hangzhou, Zhejiang 310018, China

^**School of Public Administration, South China University of Technology
381 Wu Shan Road, Guangzhou, Guangdong 510641, China

^†Corresponding author

Received:

July 4, 2017

Accepted:

December 25, 2017

Published:

November 20, 2018

Keywords:

rare disaster risk, economic volatility, DSGE model, financial accelerator

Abstract

In this paper, a Markov transfer matrix is used to characterize exogenous sudden shocks, and a closed economic DSGE model including a financial accelerator is constructed to simulate the impact of sudden shocks on China’s macroeconomic performance. The study found that: (1) Sudden impacts reduce output, investment, consumption, capital, technology, and enterprise value, but improve labor, inflation, and risk premium, thus weakening macroeconomic risk resilience. (2) The impact of sudden shocks on macroeconomic variables, from large to small, is net worth, technical level, labor, inflation, investment, capital, output, and external premium. (3) It is appropriate for the government to adopt the principle of combining broad finance measures and tight currency controls in order to improve the risk resistance ability of macroeconomic operations.

Cite this article as:

S. Zhang, S. Xu, X. Luo, Y. Sun, Y. Yang, and B. Xu, “The Macroeconomic Effect of Disaster Shocks in MRS-DSGE Models,” J. Adv. Comput. Intell. Intell. Inform., Vol.22 No.7, pp. 1009-1015, 2018.

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References

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This article is published under a Creative Commons Attribution-NoDerivatives 4.0 Internationa License.

[1] [1] G. Chen et al., “Rare Disaster Risk and China’s Macroeconomic Fluctuations,” Economic Studies, eighth, 2014.

[2] [2] R. J. Barro, “Rare Events and the Equity Premiun,” NBER Working Paper, 11310, doi: 10.3386/w11310, 2005.

[3] [3] R. J. Barro, “On the Welfare Costs of Consumption Uncertainty,” NBER Working Paper, 12763, doi: 10.3386/w12763, 2006.

[4] [4] X. Gabaix, “Variable Rare Disasters: A Tractable Theory of Ten Puzzle in Macro-Finance,” The American Economic Review, Vol.98, pp. 64-67, 2008.

[5] [5] X. Gabaix, “Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-finance,” The Quarterly J. of Economics, Vol.127, pp. 645-700, 2012.

[6] [6] F. Gourio, “Disasters and Recoveries,” American Economic Review, Vol.98, No.2, pp. 64-67, 2008.

[7] [7] F. Gourio, “Time-series Predictability in the Disaster Model,” Financial Research Letters, Vol.5, No.4, pp. 191-203, 2008.

[8] [8] F. Gourio, “Disasters Risk And Business Cycles,” NBER Working Paper, 15399, doi: 10.3386/w15399, 2009.

[9] [9] F. Gourio, “Credit Risk and Disaster Risk – preliminary and incomplete,” American Economic J. – Macroeconomics, Vol.5, No.3, pp. 1-34, 2010.

[10] [10] B. D. Keen and M. R. Pakko, “Monetary Policy and Natural Disasters in a DSGE Model,” Southern Economic J., Vol.4, pp. 973-990, 2011.

[11] [11] B. S. Bernanke, “Credit in the Macroeconomy,” Quarterly Review, Vol.25, pp. 50-70, 1993.

[12] [12] G. A. Calvo, “Staggered prices in a utility-maximizing framework,” J. of Monetary Economics, Vol.12, No.3, pp. 383-398, 1983.

[13] [13] T. Yun, “Nominal price rigidity, money supply endogeneity, and business cycles,” J. of Monetary Economics, Vol.37, No.1, pp. 345-370, 1996.

[14] [14] O. J. Blanchard and C. M. Kahn, “The Solution of Linear Difference Models under Rational Expectations,” Econometrica, Vol.48, No.5, pp. 1305-1311, 1980.

The Macroeconomic Effect of Disaster Shocks in MRS-DSGE Models

Shangfeng Zhang*, Siwa Xu*, Xiaohui Luo*, Yue Sun*, Yinan Yang**,†, and Bing Xu*

Shangfeng Zhang^, Siwa Xu^, Xiaohui Luo^, Yue Sun^, Yinan Yang^**,†, and Bing Xu^*