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Was The Worldwide Asymmetry In Current Accounts Caused By The Macroeconomic Policy Of The Global Economy’S Leader?

Listed author(s):
  • Georg QUAAS

Some authors sketch the causal chain that produced the current account surplus in China and the current account deficit of the US (as a part of global imbalances) as follows: declining interest rates in the US cause a redirection of capital flows into the periphery, rising capital inflows into China and other Asian countries trigger currency purchases by periphery central banks, and increasing stocks of foreign reserves on the asset side in the central bank balance sheet are matched by a proportional increase of reserve money on the liability side. To keep the exchange rate stable, foreign reserves are accumulated and reserve money expands. The Peoples Bank of China is trying to fight the inflation pressure with several measures, among them higher interest rates. This attracts even more foreign capital to China. Moreover, it cannot solve a problem that originates in the macroeconomic policy of the global economy’s leader – a crucial point in this argument is the redirection thesis. The empirical evidence does not support this thesis in several respects – there is no evidence for a redirected capital flow away from the US toward China, and there is no evidence that interest rates controlled by the Federal Reserve are the cause of the capital flow to China.

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Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

Volume (Year): 5 (2010)
Issue (Month): 2(12)/Summer2010 ()
Pages: 138-146

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Handle: RePEc:ush:jaessh:v:5:y:2010:i:2(12)_spring2010:p:106
Contact details of provider: Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14

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  1. Chinn, Menzie David & Frankel, Jeffrey A., 2006. "Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency?," Santa Cruz Department of Economics, Working Paper Series qt4hz4n9pb, Department of Economics, UC Santa Cruz.
  2. Ben S. Bernanke, 2005. "The global saving glut and the U.S. current account deficit," Speech 77, Board of Governors of the Federal Reserve System (U.S.).
  3. Schnabl, Gunther & Freitag, Stephan, 2009. "An asymmetry matrix in global current accounts," Working Papers 76, University of Leipzig, Faculty of Economics and Management Science.
  4. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  5. repec:fip:fedgsq:y:2005:i:mar10 is not listed on IDEAS
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