Macroeconomic Effects of the Productive Factor Price Distortion in China:Simulation Analysis Based on DSGE Model

LI Yan; HUANG Ting-ting

Volume 34 Issue 2

May 2021

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Article Navigation > Journal of Guangdong University of Finance & Economics > 2019 > 34(2): 17-30

LI Yan, HUANG Ting-ting. Macroeconomic Effects of the Productive Factor Price Distortion in China:Simulation Analysis Based on DSGE Model[J]. Journal of Guangdong University of Finance & Economics, 2019, 34(2): 17-30.

Citation:

LI Yan, HUANG Ting-ting. Macroeconomic Effects of the Productive Factor Price Distortion in China:Simulation Analysis Based on DSGE Model[J]. Journal of Guangdong University of Finance & Economics, 2019, 34(2): 17-30.

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Macroeconomic Effects of the Productive Factor Price Distortion in China:Simulation Analysis Based on DSGE Model

School of Economics, Nanjing University, Nanjing 210093, China

Received Date: 2018-11-26
Available Online: 2021-05-29
Publish Date: 2019-04-28

Abstract

Abstract

Market-oriented reform of the price of production factors is the key to improving the socialist market economic system. This paper incorporates labor price distortion and capital price distortion into a DSGE (dynamic stochastic general equilibrium) model, and investigates effects of these distortions on several essential macroeconomic variables from the perspective of DSGE. The results show that: Firstly, as the positive distortion of the labor price approaches to 0, the equilibrium value of macroeconomic variables will gradually decrease, however, except the equilibrium of the employment, as the negative distortion of the capital price approaches to 0, the equilibrium values of other economic variables will gradually increase.; the positive distortion of the capital price has a greater impact on the equilibrium value of macroeconomic variables. Secondly, the shock caused by the positive distortion of the labor price as it approaches to 0 has a negative impact on the fluctuation of macroeconomic variables, but the shock caused by the negative distortion of the capital price as it approaches to 0 has a positive impact on the fluctuation of macroeconomic variables; the positive distortion of the labor price has a greater impact on the fluctuation of macroeconomic variables. Thirdly as the positive distortion of the labor price approaches to 0, the social welfare loss will gradually increase, but as the negative distortion of the capital price approaches to 0, the social welfare loss will gradually decrease; the positive distortion of the labor price has a greater impact on the social welfare loss.To promote the market-oriented reform of production factor allocation in China, it is suggested to reduce the government's improper intervention in the capital market and maximize the role of market mechanisms in determining the capital price.
- production factor,
- factor price,
- price distortion,
- labor price,
- capital price,
- macroeconomic,
- macroeconomic effect,
- social welfare loss,
- DSGE model

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References(22)

References

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