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U.S. monetary policy and China's exchange rate policy during the great recession

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  • Juha Tervala

Abstract

I examine the transmission of expansionary U.S. monetary policy in cases where emerging economies—including China—peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as they would be under a flexible exchange rate. The value of the dollar peg is typically positive for the dollar bloc because the United States can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. The dollar peg is typically harmful to the United States, providing a rationale for criticism of China's exchange rate policy during the Great Recession.

Suggested Citation

  • Juha Tervala, 2019. "U.S. monetary policy and China's exchange rate policy during the great recession," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 113-130, January.
  • Handle: RePEc:wly:ijfiec:v:24:y:2019:i:1:p:113-130
    DOI: 10.1002/ijfe.1652
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    1. Chen, Liming & Du, Ziqing & Hu, Zhihao, 2020. "Impact of economic policy uncertainty on exchange rate volatility of China," Finance Research Letters, Elsevier, vol. 32(C).

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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