 Monetary policy and trade imbalance adjustmentZhigang Huang Journal of Chinese Economic and Business Studies, 2010, vol. 8, issue 3, 269-292 Abstract: The paper sets up a small open economy general equilibrium model to study the dynamics of the adjustment of trade imbalances under different policies based on the Chinese economy. The policies that adjust domestic prices require a long period to achieve trade balance and induce fluctuations of output and inflation, regardless of whether capital markets are open or closed, while policies that adjust the exchange rate quickly result in diminished trade surpluses, and do not cause fluctuations of output and inflation. However, policies that adjust the exchange rate slowly also lead to fluctuations under a capital flow setting. Nominal frictions are important factors to these differences, because they slow down the price adjustment, but do not bother the exchange rate changes. From the perspective of welfare, fast exchange rate adjustment policies are better than price policies, and adjustment under capital flow is better than adjustment under capital control. The implications for China's trade surplus are analyzed. Keywords: trade imbalance; monetary policy; capital flow; welfare (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:jocebs:v:8:y:2010:i:3:p:269-292 Ordering information: This journal article can be ordered from DOI: 10.1080/14765284.2010.493641 Access Statistics for this article Journal of Chinese Economic and Business Studies is currently edited by Professor Xiaming Liu More articles in Journal of Chinese Economic and Business Studies from Taylor & Francis Journals |
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