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China and global rebalancing: A two-country approach

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  • Bénassy-Quéré, Agnès
  • Carton, Benjamin
  • Gauvin, Ludovic

Abstract

Based on simulations of an original DGE model of the US and the Chinese economies under various monetary regimes, we show that an overhaul of China's social safety net is capable of reducing global imbalances whatever the exchange-rate regime, provided international capital flows are allowed to react to expected return differentials, which requires some relaxation of capital controls. Exchange-rate flexibility would accelerate the rebalancing, but not make it larger. A monetary reform would fail to rebalance the economy unless the government simultaneously acts to curb NFA accumulation through consumption-enhancing reform or reducing its objective in terms of reserve accumulation.

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Bibliographic Info

Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 26 (2013)
Issue (Month): C ()
Pages: 118-139

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Handle: RePEc:eee:chieco:v:26:y:2013:i:c:p:118-139

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Web page: http://www.elsevier.com/locate/chieco

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Keywords: Global imbalances; Exchange-rate regimes; China; Structural reforms;

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Citations

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Cited by:
  1. Ignazio Angeloni & Agnès Bénassy-Quéré & Benjamin Carton & Zsolt Darvas & Christophe Destais & Ludovic Gauvin & Jean Pisani-Ferry & André Sapir & Shahin Vallée, 2011. "Global currencies for tomorrow: A European perspective," European Economy - Economic Papers 444, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. van Treeck, Till & Sturn, Simon, 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 470934, International Labour Organization.
  3. Bonatti, Luigi & Fracasso, Andrea, 2014. "Modeling the Transition Towards Renminbi's Full Convertibility: Implications for China’s Growth," MPRA Paper 54129, University Library of Munich, Germany.

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