Asian reserves and the dollar: Is gradual adjustment possible?
AbstractLarge dollar reserves in Asian EMEs accompany large US fiscal and current account deficits. Analysis of strategic sales by Asian EMEs suggests that an attack on the dollar is not certain but is possible. A unique equilibrium where Asian EMEs sell their reserves does not exist but there are multiple Nash equilibria. Therefore action, which includes adjustment, is required to coordinate to the better equilibrium. There is evidence that more flexibility in Asian exchange rates will reduce risk for Asian EMEs, but the flexibility will have to be limited, and it depends on more flexibility in the renminbi. Moreover, limits to adjustment in wages put limits on realignments between US and Asian exchange rates. Therefore while a gradual adjustment strategy is feasible it will require both expenditure switching and expenditure reduction, with the latter moderated by the maintenance of robust global growth.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 29979.
Date of creation: Sep 2005
Date of revision:
multiple equilibria; coordination; collective action; real wages; expenditure switching;
Other versions of this item:
- Goyal Ashima, 2005. "Asian Reserves and the Dollar: Is Gradual Adjustment Possible?," Global Economy Journal, De Gruyter, vol. 5(3), pages 1-26, September.
- Ashima Goyal, 2005. "Asian Reserves and the Dollar: Is Gradual Adjustment Possible?," Working Papers id:252, eSocialSciences.
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