Abstract
This paper constructs a sticky price Dynamic Stochastic General Equilibrium model with multi-regions. Producers from different regions would range in price rigidity, production function, the regional structures of intermediate inputs. That is, firms from each area, can get intermediates and investments from all the regions in the country following the empirical Multi-region Input-Output table in China. Different from the previous symmetry model, the model in this paper allows idiosyncratic regional dynamics to the national monetary shocks. This model is calculated by the Bayesian estimation method using the regional and aggregate China empirical data.
Highlights
Economies would involve the consumption and production of goods which are produced by different producers in various regions with distinct productivities and inputs
Cardia and Murcia (2005) used a sticky-price dynamic stochastic general equilibrium model with habit formation and capital adjustment costs to show the effects of monetary shocks in the US business cycle
The simplified models cannot figure out some problems in policy analysis concerned about the trade and production network, such as why the monetary policy appears to have different effects in areas and how heterogeneity in price stickiness, I-O structure in production, investment interactions across areas affects the economy fluctuation
Summary
Economies would involve the consumption and production of goods which are produced by different producers in various regions with distinct productivities and inputs. Cardia and Murcia (2005) used a sticky-price dynamic stochastic general equilibrium model with habit formation and capital adjustment costs to show the effects of monetary shocks in the US business cycle. The simplified models cannot figure out some problems in policy analysis concerned about the trade and production network, such as why the monetary policy appears to have different effects in areas and how heterogeneity in price stickiness, I-O structure in production, investment interactions across areas affects the economy fluctuation. We build up a New Keynesian DSGE model where regions are heterogeneous in price stickiness, productive factors intensity and structure of input-output and investment. Our results indicate that the heterogeneity on price rigidity, structures of input-output and investment, enlarges the mechanism of the multi-region model and brings the different feedback to the monetary disturbance.
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