Based on RBC 's Chinese economic fluctuations and total assets of
|Keywords||economic fluctuation risk-free rate equity premium RBC|
This paper modified the standard RBC model, that’s, the stochastic growth trend highlighted by Aguiar and Gopinath(2007)  and the habit formation and capital adjustment cost highlighted by Jermann(1998) were introduced to the standard model, eagering to explain the phomena of China high macroeconomic volatility, minus real risk-free rate, and comparative high equity premium.Since the adoption of the Reform and Opening up Policy, China’s economy has experienced relatively serious fluctuations. The statistical results show that the fluctuation rates of per capita real GDP, per capita real consumption, and per capita real investment are, respectively 0.0571, 0.0449 and 0.1551, which are about two times of those of the USA. The co-movement of China’s economic volatility was also very obvious. For example, the correlation between consumption and GDP, investment and GDP, and the GDP and its first order lags, were, respectively, 0.8, 0.9 and 0.64. Meanwhile, the annual real risk-free rate in China between 1992 and 2007 was -1.12%, although the average ratio of private savings over GDP was 58%. And, the average equity premium in the same period was 17.3%.In order to explain the interesting phenomena above, this paper makes a theoretical model based on DSGE model, which is the standard model in the research in macroeconomic fluctuation and asset pricing. The model in this paper is a DSGE model with a non-trivial production sector, as a result, the phenomena mentioned above could be explained in a uniform model, and the relationship behind those phenomena could be uncovered.This model is approximated through the log-linearization method. Then, the dynamic functions of output, consumption, investment, risk-rate, and equity premium are presented, and the parameters that will be used in numerical simulation are calibrated. After the numerical simulation through the Matlab software, the results are shown to be extremely close to the data in reality, say, the theoretical (real) standard deviation of output, consumption, and investment are, respectively, 0.0394(0.0449)and 0.1233(0.1551); the correlations between consumption and GDP, investment and GDP, and the GDP and its first order lags, are, respectively, 0.82(0.8), 0.95(0.9) and 0.66(0.64); the risk-free rate and equity premium are -1.28%(-1.12)% and 17.98%(17.3%). After theoretical analysis, the explanations for the phenomena above are as follows: (1)The main sources that lead to China’s economic fluctuation after the adoption of the Reform and Opening-up Policy are the transitory technology shock and the growth trend shock both of which are characterized with large standard deviation. The reasons why volatility of consumption is less than that of GDP and why volatility of investment is larger than that of GDP are that consumers are risk averse, and that their consumption are characterize with heavy habit formation. The high co-movement is produced by consumer’s rationality.(2) The reasons that caused the negative average real risk-free rate and high equity premium are the great economic fluctuation brought up by stochastic shocks with high standard deviations, the consumer’s heavy habit formation, and the capital adjustment cost in firms’technology.