The Spillover Effects of the European Government Debt Crisis on Chinese Economy

This paper establishes an open Dynamic Stochastic General Equilibrium (DSGE) model to study the effects of European government debt crisis on Chinese economy. The model includes both of the economies, it also contains many real and nominal frictions. Besides, there are comprehensive shocks reflecting fluctuations in demand, supply and policies. We refer to some important literature and key macroeconomic indicators to calibrate the model, then use it to analysis the spillover effects of the current European government debt crisis. The impulse response results show that the spillover effects caused by the rising treasury yields are transmitted mainly by international trade and capital flows between European Area and China. Under the influence of European debt crisis, terms of trade in China gets better but assets price and inflation in China increase modestly.