Global Financial Crisis, China's Macroeconomic Policies and the Fluctuations of China's Economy

The paper simulates and measures the effects of the international financial crisis of 2008 on China's economy by employing a small open DSGE-VAR model, with which the efficiencies of the responses of China's monetary and fiscal policies are assessed, and the determinants of China's business cycle in the long run are also investigated. The results show that, first, the channels of exchange rate and foreign trade are the main transmission mechanisms of financial crisis' shocks on China's economy; second, if the real GDP of USA falls 1 percent caused by the Great Recession, the real output of China will decrease 1.2% without policy's stimulus, therefore the actual spill-over effect of the international crisis to China can be estimated; third, the stabilizing policy package of China's government are effective in tackling the international financial shocks; finally, the preference shocks, investment shocks, interest rate shocks and the external shocks from foreign countries by financial crises are identified as main sources of the fluctuations of China's economy in our simulation