Abstract: In order to analyze China’s macroeconomic fluctuations, the Bayesian method can be used to estimate a dynamic stochastic general equilibrium model containing various impacting and frictional factors. Such models usually use interest rate rules to measure the impact of monetary policy; however, the monetary quantity rule may be more suitable for China’s reality. Under the new setting of using the monetary quantity rule, the results of the historical variance decomposition show that during 1992-2016, the main driving factors for the fluctuation of output growth rate are the impact of money supply, the investment shocks and the exogenous demand shocks, of which the two major fluctuations need to be explained by other shocks. The main driving factors of fluctuations in inflation are the money supply shock, followed by the price-plus shock, the investment efficiency shock and the permanent technical shock. Under the new setting, the results of the theoretical variance decomposition show that although monetary policy is still a very important factor, the degree of its importance has been reduced; in addition, the investment fluctuation is mainly due to the impact of investment efficiency rather than the impact of investment product prices. These findings are inconsistent with the existing conclusions both at home and abroad. This shows that the choice of ways to measure the impact of monetary policy is crucial to the analysis of China’s macroeconomic fluctuations.

Key words: monetary policy rules; macroeconomic fluctuations; Bayesian method; dynamic stochastic general equilibrium model