| Abstract | Since initiation of the reform and opening-up policy, there are many facts same with international economy: consumption has high volatility and employment is wick correlated with productivity, and there are many facts different from those both in the developed countries and developing countries and emerging countries: firstly, GDP output’s volatility is less than consumption’s; Secondly, investment’s volatility is very high. To solve these facts, this article establishes a RBC model in the heterogeneous economy that incorporates taste shocks, capital market incomplete and idiosyncratic shocks of individual productivity. It finds that these economic mechanisms have important impacts on real macroeconomic variables, this model can explain about 84% of the actual volatility, can reasonably predict the correlations of productivity with macroeconomic variables, can reasonably predict the correlations of GDP with macroeconomic variables and can reasonably explain the features of labor markets’ fluctuations. It implies the business cycle in China can be explained well by the RBC in the heterogeneous economy. In addition, it finds that capital market incomplete represented by borrowing constraints has import influence on macro economic fluctuations, it is one of the important reasons for high savings rates China, thus put forward that government should continue to push financial marketization reform that reduces the capital market incomplete, to reduce the economic fluctuations and improve the stability of economic growth. These founds would explain some phenomenons about macroeconomic fluctuations (e.g., investment, labor productivity, MRS, Wedge) from Heterogeneity, borrowing constraints and taste shocks. |