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

China, the Dollar Peg and U.S. Monetary Policy

  • Tervala, Juha

I examine the transmission of expansionary U.S. monetary policy in case where developing countries-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 under a flexible exchange rate. The value of the dollar peg is positive for the dollar bloc because the U.S. can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. If the expenditure switching effect is weak, the peg is harmful to the U.S., providing a rationale for criticism of China's exchange rate policy.

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/53223/1/MPRA_paper_53223.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53223.

as
in new window

Length:
Date of creation: 27 Jan 2014
Date of revision:
Handle: RePEc:pra:mprapa:53223
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. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "International Risk Sharing and the Transmission of Productivity Shocks," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 443-473.
  2. Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
  3. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
  4. Christian Broda & David E. Weinstein, 2004. "Globalization and the Gains from Variety," NBER Working Papers 10314, National Bureau of Economic Research, Inc.
  5. Reuven Glick & Michael M. Hutchison, 2008. "Navigating the trilemma: capital flows and monetary policy in China," Working Paper Series 2008-32, Federal Reserve Bank of San Francisco.
  6. Juha Tervala, 2011. "International Welfare Effects of Monetary Policy," Discussion Papers 66, Aboa Centre for Economics.
  7. Obstfeld, Maurice & Duarte, Margarida, 2005. "Monetary Policy in the Open Economy Revisited: The Case for Exchange-Rate Flexibility Restored," 2005 Meeting Papers 386, Society for Economic Dynamics.
  8. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
  9. Caroline Schmidt, 2005. "International Transmission Effects of Monetary Policy Shocks: Can Asymmetric Price Setting Explain the Stylized Facts?," KOF Working papers 05-102, KOF Swiss Economic Institute, ETH Zurich.
  10. John C. Bluedorn & Christopher Bowdler, 2006. "The Open Economy Consequences of U.S. Monetary Policy," Economics Series Working Papers 265, University of Oxford, Department of Economics.
  11. Michael B. Devereux & Charles Engel, 2000. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibility," Working Papers 042000, Hong Kong Institute for Monetary Research.
  12. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle currency use in international trade," Staff Reports 200, Federal Reserve Bank of New York.
  13. Yin-Wong Cheung & Dickson C. Tam & Matthew S. Yiu, 2008. "Does the Chinese interest rate follow the US interest rate?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 53-67.
  14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  15. Mishkin, Frederic S, 1998. "The Dangers of Exchange-Rate Pegging in Emerging-Market Countries," International Finance, Wiley Blackwell, vol. 1(1), pages 81-101, October.
  16. Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Optimal simple and implementable monetary and fiscal rules," FRB Atlanta Working Paper 2007-24, Federal Reserve Bank of Atlanta.
  17. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  18. Maurice Obstfeld and Kenneth Rogoff., 2001. "Global Implications of Self-Oriented National Monetary Rules," Center for International and Development Economics Research (CIDER) Working Papers C01-120, University of California at Berkeley.
  19. Bergin, Paul R., 2006. "How well can the New Open Economy Macroeconomics explain the exchange rate and current account?," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 675-701, August.
  20. Jordi Gali & Tommaso Monacelli, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," NBER Working Papers 8905, National Bureau of Economic Research, Inc.
  21. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
  22. Zhang, Wenlang, 2009. "China's monetary policy: Quantity versus price rules," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 473-484, September.
  23. Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2012. "Epilogue: foreign-exchange-market operations in the twenty-first century," Working Paper 1207, Federal Reserve Bank of Cleveland.
  24. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  25. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
  26. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
  27. Koivu, Tuuli, 2009. "Has the Chinese economy become more sensitive to interest rates? Studying credit demand in China," China Economic Review, Elsevier, vol. 20(3), pages 455-470, September.
  28. Benigno, Gianluca & Benigno, Pierpaolo, 2003. "Designing targeting rules for international monetary policy cooperation," Working Paper Series 0279, European Central Bank.
  29. Tille, Cedric, 2001. "The role of consumption substitutability in the international transmission of monetary shocks," Journal of International Economics, Elsevier, vol. 53(2), pages 421-444, April.
  30. F. Berkhout, 1999. "Essay," Energy & Environment, SAGE Publishing, vol. 10(2), pages 209-212, March.
  31. Gita Gopinath & Roberto Rigobon, 2008. "Sticky Borders," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 531-575.
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:53223. 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.