Money Shock in Dynamic Stochastic General Equilibrium Models

Based on the China economy data 1996-2005, two issues are addressed in this paper. First, we examine the ability of the DSGE model to describe stylized facts about China economy. The model succeeds to replicate the variability observed in 1996-2005. Second, we compare two methods of motivating money in DSGE Model. Drawing on our econometric analysis, we argue that the cash-in-advance model, closed by a money growth rule, comes closer to the data.