This is my thesis for my BA degree at Shanghai Normal University and I appreciate Michele from LSE who gave me some useful suggestion.  All rights are reserved by the author.

FDI,  the  Financial  Accelerator  and  the  Volatility  of  Macro  economy: A  Simple  DSGE  
and Empirical Evidence in China  
By Jack Yifei Zhang  
The Chinese edition of this paper has been published on China Econometric Academic  
Network (CEAN) as the working paper.  
http://www.wise.xmu.edu.cn/cean/getpaper.aspx?id=332  
It  was  then  republished  by  the   Working  Paper  Series  on  CCER’s  CENET,  Peking  
University.   
http://www.cenet.org.cn/article.asp?articleid=51679  
   
Abstract  The  model  of  this  paper  based  on  Bernanke,  Gertler  and  Gilshrist  (1998)  
includes  a  new  variable,  direct  foreign  investment  (FDI),  in  order  to  analyze  the  
effects of  it on the fluctuation of macro economy level. Firstly, FDI  can increase  the  
general  prices  (CPI)  under  China’s fixed  exchange  rate  system  and  the  augment  of  
general  prices  will  not  only  increase  the  opportunity  cost  of  loan  for  commercial   
banks but also change families’ decisions on saving and consuming. This change will  
fina lly enlarge the fluctuation of macro ecnomy through financial accelerator. But on  
the  other  hand,  FDI  can  directly  relieve  difficulties  of financing for  both  local  and  
multi-national enterprises. Which effect is bigger in Chinese economy? According to  
a simple DSGE and relevant empirical analysis in Chapter 3 and 5, we can conclude  
that both two effects do exist in Chinese Economy. The standard VAR has proved that  
growing  of  FDI  will  increase  the  general  prices  and  CPI  will  influence  the  credit  
market.  But  the  direct  effect  of  FDI  which  relieves  difficulties  of  financing  for  
enterprises  is  bigger  than  the  former  one.  So  for  Chinese  economy,  keeping  steady  
general  prices  and  carrying  out  policies  to  relieve  the  difficulties  of  financing  for  
companies are both helpful to keep economy more steady. (JEL: E32, C51, F21)  
Keywords: Financial Accelerator；FDI；ARIMA；Unrestricted VAR   
Jack Yifei Zhang  
An undergraduate student in SHNU, China  
Shanghai, China, 200435  
jack1000262607@hotmail.com