Stabilization Policy in an Economy with Two Exchange Rate Regimes

Arndt Sven W. ()
Additional contact information
Arndt Sven W.: Claremont McKenna College

Global Economy Journal, 2012, vol. 12, issue 2, 15

Abstract: This paper uses a flex-price open economy macro model to examine the effectiveness of U.S. monetary and fiscal policies when the dollar floats freely against the euro, but is fixed against the Chinese yuan. It is assumed that capital mobility is high between the U.S. and the Eurozone, but low between the U.S. and China. The model allows for short-run price flexibility and imperfect substitutability between domestic and foreign financial assets.The focus is on the implications for the efficacy of U.S. macro stabilization policies of China's fixed-rate strategy. While many countries have pegged their currencies to the dollar, China is large enough to have an impact. It is shown that its large size enables China to impede the effectiveness of U.S. macroeconomic policies. Indeed, while the U.S. is officially tagged as an independent floater, Chinese intervention is capable of interfering with dollar-euro flexibility and thereby creates outcomes that are more consistent with policy under fixed rates.

Keywords: open economy macro; exchange rate regimes; U.S.-China payments adjustment (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/1524-5861.1846 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:glecon:v:12:y:2012:i:2:n:7

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/gej/html

DOI: 10.1515/1524-5861.1846

Access Statistics for this article

Global Economy Journal is currently edited by Jannett Highfill

More articles in Global Economy Journal from De Gruyter
Bibliographic data for series maintained by Peter Golla ().