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Chinese monetary expansion and the U.S. economy

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  • Vespignani, Joaquin L.
  • Ratti, Ronald A

Abstract

This paper examines the influence of monetary shocks in China on the U.S. economy over ‎‎1996-2012. The influence on the U.S. is through the sheer scale of China’s growth through ‎effects in demand for imports, particularly that of commodities. China’s growth influences ‎world commodity/oil prices and this is reflected in significantly higher inflation in the U.S. ‎China’s monetary expansion is also associated with significant decreases in the trade ‎weighted value of the U.S. dollar that is due to the operation of a pegged currency. China ‎manages the exchange rate and has extensive capital controls in place. In terms of the ‎Mundell–Fleming model, with imperfect capital mobility, sterilization actions under a ‎managed exchange rate permit China to pursue an independent monetary policy with ‎consequences for the U.S.‎

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48050.

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Date of creation: 04 Jul 2013
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Handle: RePEc:pra:mprapa:48050

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Keywords: International monetary transmission; U.S. Macroeconomics; China’s monetary policy;

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