The Macroeconomic Effect of Disaster Shocks in MRS-DSGE Models

Abstract

In this paper, a Markov transfer matrix is used to characterize exogenous sudden shocks, and a closed economic DSGE model including a financial accelerator is constructed to simulate the impact of sudden shocks on China’s macroeconomic performance. The study found that: (1) Sudden impacts reduce output, investment, consumption, capital, technology, and enterprise value, but improve labor, inflation, and risk premium, thus weakening macroeconomic risk resilience. (2) The impact of sudden shocks on macroeconomic variables, from large to small, is net worth, technical level, labor, inflation, investment, capital, output, and external premium. (3) It is appropriate for the government to adopt the principle of combining broad finance measures and tight currency controls in order to improve the risk resistance ability of macroeconomic operations.