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The role of the chinese dollar peg for macroeconomic stability in China and the world economy

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  • Gunther Schnabl

    ()
    (Institute for Economic Policy, University of Leipzig)

Abstract

During the 1997/98 Asian crisis and the 2007-2010 world financial and economic crisis, China has proved to be a stabilizer for East Asia and the world. The paper stresses the crucial role of the dollar peg for macroeconomic stability in China. The paper explores the current role of China's nominal exchange rate stabilization as stabilizing factor for China, East Asia and the world economy. Distortions originating in real exchange rate stabilization are identified and are argued to be a risk for global growth perspectives. To prevent further economic and financial turmoil the paper recommends policy coordination between China and the US. The exit from unconventional low interest rate policies in the US combined with the end of real (but not nominal) exchange rate stabilization in China is seen as necessary to stabilize longterm growth in China, East Asia and the US.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena in its series Global Financial Markets Working Paper Series with number 13-2010.

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Date of creation: 10 Jan 2011
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Handle: RePEc:hlj:hljwrp:13-2010

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Web page: http://www.gfinm.de

Related research

Keywords: China; dollar peg; structural distortions; international policy coordination; global imbalances;

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References

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  1. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 3993, July.
  2. Ronald McKinnon & Gunther Schnabl, 2003. "Synchronised Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 26(8), pages 1067-1088, 08.
  3. Galina Hale & Cheryl Long, 2010. "If you try, you’ll get by: Chinese private firms’ efficiency gains from overcoming financial constraints," Working Paper Series, Federal Reserve Bank of San Francisco 2010-21, Federal Reserve Bank of San Francisco.
  4. Eswar S. Prasad, 2009. "Effects of the Financial Crisis on the U.S.-China Economic Relationship," Cato Journal, Cato Journal, Cato Institute, Cato Journal, Cato Institute, vol. 29(2), pages 223-235, Winter.
  5. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2010. "China's Current Account and Exchange Rate," NBER Chapters, National Bureau of Economic Research, Inc, in: China's Growing Role in World Trade, pages 231-271 National Bureau of Economic Research, Inc.
  6. William R. Cline & John Williamson, 2009. "2009 Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs, Peterson Institute for International Economics PB09-10, Peterson Institute for International Economics.
  7. Vincent Bouvatier, 2006. "Hot money inflows in China : How the people's bank of China took up the challenge," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla06011, Université Panthéon-Sorbonne (Paris 1).
  8. Schnabl, Gunther & Freitag, Stephan, 2010. "Reverse causality in global current accounts," Working Paper Series, European Central Bank 1208, European Central Bank.
  9. Guonan Ma & Robert N. McCauley, 2007. "Do China's capital controls still bind? Implications for monetary autonomy and capital liberalisation," BIS Working Papers, Bank for International Settlements 233, Bank for International Settlements.
  10. Ronald McKinnon & Gunther Schnabl, 2009. "The Case for Stabilizing China's Exchange Rate: Setting the Stage for Fiscal Expansion," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(1), pages 1-32.
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Cited by:
  1. Gunther Schnabl & Stephan Freitag, 2012. "Reverse Causality in Global and Intra-European Imbalances," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 20(4), pages 674-690, 09.
  2. Ronald McKinnon & Gunther Schnabl, 2012. "China and Its Dollar Exchange Rate: A Worldwide Stabilising Influence?," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 35(6), pages 667-693, 06.
  3. Kristina Spantig, 2012. "International monetary policy spillovers in an asymmetric world monetary system - The United States and China," Global Financial Markets Working Paper Series, Friedrich-Schiller-University Jena 2012-33, Friedrich-Schiller-University Jena.
  4. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
  5. Gunther Schnabl & Stephan Freitag, 2012. "Determinants of Global and Intra-European Imbalances," Global Financial Markets Working Paper Series, Friedrich-Schiller-University Jena 25-2011, Friedrich-Schiller-University Jena.
  6. Jörg Asmussen & Gunther Schnabl, 2011. "Umbruch im Weltwährungssystem: Sollte die Zeit freier Wechselkurse beendet werden?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 64(07), pages 03-09, 04.
  7. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series, Friedrich-Schiller-University Jena 26-2012, Friedrich-Schiller-University Jena.

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