Currency intervention and consumer welfare in an open economy

Eun Choi and Hailong Jin

International Review of Economics & Finance, 2014, vol. 29, issue C, 47-56

Abstract: This paper investigates whether China can benefit from a trade surplus in one period, using it to pay off the debt in the next period by manipulating the exchange rates. If the marginal utility of income is nonincreasing in the exchange rate, then the equilibrium exchange rates that yield a trade balance in each period maximize the total utility over two periods, regardless of the interest rate. Numerical examples using the Cobb–Douglas and CES utility functions illustrate the main proposition.

Keywords: Yuan–dollar exchange rate; Currency intervention (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Currency Intervention and Consumer Welfare in an Open Economy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:29:y:2014:i:c:p:47-56

DOI: 10.1016/j.iref.2013.04.005

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