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A Study Of The Diversification Of China'S Foreign Reserves Within A Three‐Country Stock‐Flow Consistent Model

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  • Marc Lavoie
  • Jun Zhao

Abstract

The paper presents a three‐country stock‐flow consistent model, with one fixed exchange rate and two flexible exchange rates, in the tradition of portfolio balance models with imperfect asset substitutability. The model is applied to simulate the impact of the diversification of the foreign reserves of China, away from US dollars and towards euros. The simulation results show that China and the USA both benefit from diversification, while the Euroland economy slows down. An intriguing feature of the model is that it generates path dependence.

Suggested Citation

  • Marc Lavoie & Jun Zhao, 2010. "A Study Of The Diversification Of China'S Foreign Reserves Within A Three‐Country Stock‐Flow Consistent Model," Metroeconomica, Wiley Blackwell, vol. 61(3), pages 558-592, July.
    • Handle: RePEc:bla:metroe:v:61:y:2010:i:3:p:558-592
    DOI: 10.1111/j.1467-999X.2009.04082.x
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    References listed on IDEAS

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    3. Roberto Veneziani & Luca Zamparelli & Michalis Nikiforos & Gennaro Zezza, 2017. "Stock-Flow Consistent Macroeconomic Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1204-1239, December.
    4. Tim Jackson & Ben Drake & Peter Victor & Kurt Kratena & Mark Sommer, 2014. "Foundations for an Ecological Macroeconomics. Literature Review and Model Development. WWWforEurope Working Paper No. 65," WIFO Studies, WIFO, number 47497, August.
    5. Edwin Le Heron & Nicolas Yol, 2019. "The macroeconomic effects of migrants' remittances in Moldova: a stock–flow consistent model," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 16(1), pages 31-54, April.
    6. Emilio Carnevali, 2021. "Price mechanism and endogenous productivity in an open economy stock‐flow consistent model," Metroeconomica, Wiley Blackwell, vol. 72(1), pages 22-56, February.
    7. Lorenzo Nalin & Giuliano Toshiro Yajima, 2021. "Commodities fluctuations, cross border flows and financial innovation: A stock‐flow analysis," Metroeconomica, Wiley Blackwell, vol. 72(3), pages 539-579, July.
    8. Carnevali, Emilio & Deleidi, Matteo & Pariboni, Riccardo & Veronese Passarella, Marco, 2021. "Cross-border financial flows and global warming in a two-area ecological SFC model," Socio-Economic Planning Sciences, Elsevier, vol. 75(C).
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