Adjustment in an Open Economy with Two Exchange-Rate Regimes

Sven W. Arndt

The Journal of Economic Asymmetries, 2011, vol. 8, issue 2, 11-22

Abstract: This paper examines adjustment in a model with three economies, two exchange-rate regimes, and varying capital mobility. In the benchmark scenario, the U.S. dollar fluctuates against the euro and the Chinese yuan, but capital mobility is high in the former and low in the latter case. This generates offsetting exchange-rate adjustments, which affect the efficacy of U.S. fiscal policy. In the next two scenarios, the yuan is fixed against the dollar. Rate pegging by a large country like China “interferes” with U.S. macro adjustment and undermines U.S. policy autonomy.

Keywords: Open economy macro; Exchange rate regimes; US-China payments adjustment; Production networks (search for similar items in EconPapers)
JEL-codes: F31 F32 F41 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:8:y:2011:i:2:p:11-22

DOI: 10.1016/j.jeca.2011.02.003

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