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Currency Intervention and Consumer Welfare in an Open Economy

Author

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  • Jin, Hailong
  • Choi, E Kwan

Abstract

This paper investigates whether China can benefit from a trade surplus (deficit) in one period and use it to pay off the debt in the next period by manipulating the exchange rates. If marginal utility of income is nonincreasing in the exchange rate, then the optimal exchange rates are the equilibrium rates that yields trade balance each period. Numerical examples using the Cobb-Douglas and CES utility functions illustrate the main proposition.

Suggested Citation

  • Jin, Hailong & Choi, E Kwan, 2014. "Currency Intervention and Consumer Welfare in an Open Economy," Staff General Research Papers Archive 37379, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:37379
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    JEL classification:

    • F1 - International Economics - - Trade

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