Real business cycles in China are different than in many other countries, including consumption being more volatile than output and uncorrelated with investment. To study whether Chinese institutions can account for these features, we expand the standard real business cycle model with private...

Empirically, the relative volatility of consumption to output decreases with income. The standard small-open economy real business cycle model, however, produces a positive relationship. We can recover the negative relationship when we augment the standard model with micro-founded expropriations...