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China'S New Exchange Rate Policy: Will China Follow Japan Into A Liquidity Trap?

  • RONALD I. MCKINNON

    ()

    (Department of Economics, Landau Economics Building, Stanford University, Stanford, CA 94305-6072, USA)

Todays' American mercantile pressure on China to appreciate the renminbi against the dollar is eerily similar to the American pressure on Japan to appreciate the yen that began over 30 years ago. There are some differences between the two cases, but downward pressure on Chinese interest rates from foreign exchange risk could lead China into a zero interest rate liquidity trap much like the one that Japan has suffered since the mid-1990s.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal The Singapore Economic Review.

Volume (Year): 50 (2005)
Issue (Month): sp ()
Pages: 463-474

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Handle: RePEc:wsi:serxxx:v:50:y:2005:i:sp:p:463-474
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  1. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia. Mitigating Conflicted Virtue," International Finance 0406007, EconWPA, revised 07 Jul 2004.
  2. Michael Funke, 2005. "Inflation in Mainland China - Modelling a Roller Coaster Ride," Quantitative Macroeconomics Working Papers 20507, Hamburg University, Department of Economics.
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