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Global implications of a US‐led currency war

Author

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  • Adam John Triggs
  • Warwick James McKibbin

Abstract

Many US policymakers on both sides of the aisle, including President Trump, have called on the US Federal Reserve to cut interest rates to depreciate the US dollar. This paper uses an intertemporal general equilibrium model to explore what would likely happen if this policy was pursued. It shows that the general equilibrium effects of a depreciated real effective exchange rate brought about by lower US interest rates can result in a wide variety of unintended consequences. The paper explores what would happen if US trading partners were to retaliate by devaluing their currencies.

Suggested Citation

  • Adam John Triggs & Warwick James McKibbin, 2021. "Global implications of a US‐led currency war," The World Economy, Wiley Blackwell, vol. 44(6), pages 1484-1508, June.
    • Handle: RePEc:bla:worlde:v:44:y:2021:i:6:p:1484-1508
    DOI: 10.1111/twec.13112
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    References listed on IDEAS

    as
    1. Olivier Blanchard, 2021. "Currency Wars, Coordination, and Capital Controls," World Scientific Book Chapters, in: Steven J Davis & Edward S Robinson & Bernard Yeung (ed.), THE ASIAN MONETARY POLICY FORUM Insights for Central Banking, chapter 4, pages 134-157, World Scientific Publishing Co. Pte. Ltd..
    2. Warwick J. McKibbin & Martin T. Ross & Robert Shackleton & Peter J. Wilcoxen, 1999. "Emissions Trading, Capital Flows and the Kyoto Protocol," The Energy Journal, , vol. 20(1_suppl), pages 287-333, June.
    3. Adam Triggs, 2018. "Macroeconomic policy cooperation and the G20," The World Economy, Wiley Blackwell, vol. 41(5), pages 1309-1341, May.
    4. David Vines, 2015. "Cooperation between countries to ensure global economic growth: a role for the G20?," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 29(1), pages 1-24, May.
    5. Warwick J. McKibbin & Adam Triggs, 2018. "Modelling the G20," CAMA Working Papers 2018-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F6 - International Economics - - Economic Impacts of Globalization

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