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China and Global Macroeconomic Interdependence

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  • Rod Tyers

    (Business School, University of Western Australia)

Abstract

China is transitioning toward more inward-focussed growth, causing adverse changes in the product and financial terms of trade in the advanced economies. At the same time, international financial markets tussle between tightening forces associated with the US recovery on the one hand and unconventional monetary expansion in Europe and Japan on the other. The way these shocks interact is examined in this paper using a global macro model with national portfolio rebalancing and asset differentiation and a representation of unconventional monetary policy. Results are found to be sensitive to the contributions of productivity and capital accumulation to China’s growth. When these are offered in realistic combination, the combined shocks are deflationary in the US and China, implying that contractionary US monetary policy is not imminent. Monetary responses in the US and China then combine with price targeting regimes in the EU and Japan to expand liquidity globally, amplifying impacts on financial markets and the global distribution of real investment.

Suggested Citation

  • Rod Tyers, 2015. "China and Global Macroeconomic Interdependence," Economics Discussion / Working Papers 15-05, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:15-05
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