Currency Intervention and Consumer Welfare in an Open Economy

Hailong Jin and Eun Choi

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper investigates whether China can benefit from a trade surplus (deficit) in one period and use it to pay off the debt in the next period by manipulating the exchange rates. If marginal utility of income is nonincreasing in the exchange rate, then the optimal exchange rates are the equilibrium rates that yields trade balance each period. Numerical examples using the Cobb-Douglas and CES utility functions illustrate the main proposition.

Keywords: currency interventioni; consumer welfare (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2014-03-07
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Forthcoming in International Review of Economics and Finance

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Journal Article: Currency intervention and consumer welfare in an open economy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:37379

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