Rare Disaster Risk and the Macroeconomic Fluctuation in China
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| Title | Rare Disaster Risk and the Macroeconomic Fluctuation in China
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| Author | Chen Guojin, Chao Jiangfeng and Wu Xiaoli |
| Organization | Xiamen University |
| Email | gjchenxmu@gmail.com; |
| Key Words | Rare Disaster Risk; Macroeconomic Fluctuation; RBC Model; Fiscal Policy |
| Abstract | We construct a dynamic stochastic general equilibrium model with rare disaster to quantify the impact of the rare disaster on the macroeconomic fluctuation in China and evaluate the effectiveness of fiscal policy for the economic recovery after the disaster. We decompose the rare disaster into three forms: the TFP disaster, capital disaster and double disaster. We find that: (1) The RBC mode with disaster can explain output and capital volatility better than the RBC model without disaster, and the double disaster model is better than TFP disaster model and capital disaster model to explain the macroeconomic fluctuation; (2) The disaster has more destructive impact for China's economy than the United States; (3) The moderate amount of government subsidies can significantly reduce the destructive effect on macro economy by the disaster, but it hasn’t obvious effect on shorten the time of recovery period after the disaster. We also consider the preference shock and adjustment costs to check the robustness of our conclusions. |
| Serial Number | WP720 |
| Time | 2014-09-30 |
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