IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Does the macroeconomic policy of the global economy’s leader cause the worldwide asymmetry in current accounts?

  • Quaas, Georg

Schnabl and Freitag (2009) sketch the causal chain that produced the current account surplus in China and the current account deficit of the U.S. (as a part of global imbalances) as follows: declining interest rates in the U.S. 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 U.S. toward China, and there is no evidence that interest rates controlled by the Federal Reserve are the cause of the capital flow to China.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://mpra.ub.uni-muenchen.de/22133/1/MPRA_paper_22133.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22133.

as
in new window

Length:
Date of creation: 15 Apr 2010
Date of revision:
Handle: RePEc:pra:mprapa:22133
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page: https://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ronald McKinnon & Gunther Schnabl, 2009. "China's financial conundrum and global imbalances," BIS Working Papers 277, Bank for International Settlements.
  2. 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.
  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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:22133. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.