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Optimal Fiscal and Monetary Policies in the Face of Disasters in China
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TitleOptimal Fiscal and Monetary Policies in the Face of Disasters in China  
AuthorZhao Xiangqin, Yuan Jing and Chen Guojin  
OrganizationXiamen University;; 
Key WordsRare Disaster Shock; Government Productive Spending; Optimal Fiscal Policy; Optimal Monetary Policy 
AbstractWith the introduction of government productive expenditure, we propose a New Keynesian DSGE model with the rare disaster shock, and the calibration results show that our model can fit the stylized facts of the Chinese economy better. We calibrate our model to contrast optimal policies under commitment and discretion regime in the Chinese economy, and find that : (1) compared to the discretion regime, the commitment regime will result in less welfare loss; (2) government productive spending will reduce the consumption growth and tax income volatility, but will also reduce the debt absorption effect; (3) the introduction of inflation aversion will induce government to rely more on the debt to absorb the shock, and reduce the welfare loss in the discretion regime. We also calibrate our model with the US economy data and find the similar conclusion.  
Serial NumberWP1148 
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