Chinese Economic Fluctuations and the Dynamic Effects of a Monetary Shock

This paper constructs a dynamic stochastic general equilibrium (DSGE) model which incorporates money by CIA(Cash-in-advance) approach, and applies it to Chinese business cycle model analysis from 1996 to 2005. The comparison of simulation results and actual data imply that the model can reflect economic fluctuations. Quantitative analysis demonstrates that technology shock and money shock contribute to more than 89% of Chinese Economic Fluctuations, and DSGE model is an ideal framework for Chinese monetary policy analysis. The paper also suggests to incorporate the sticky price property and fiscal policy to explain the economy better.