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Chinese Monetary Expansion and the US Economy

This paper examines the influence of monetary shocks in China on the U.S. economy over 1996-2012. The influence on the U.S. is through the sheer scale of China’s growth through effects in demand for imports, particularly that of commodities. China’s growth influences world commodity/oil prices and this is reflected in significantly higher inflation in the U.S. China’s monetary expansion is also associated with significant decreases in the trade weighted value of the U.S. dollar that is due to the operation of a pegged currency. China manages the exchange rate and has extensive capital controls in place. In terms of the Mundell–Fleming model, with imperfect capital mobility, sterilization actions under a managed exchange rate permit China to pursue an independent monetary policy with consequences for the U.S.

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Paper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 16874.

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Length: 26 pages
Date of creation: 05 Aug 2013
Date of revision: 05 Aug 2013
Publication status: Published by the University of Tasmania. Discussion paper 2013-04
Handle: RePEc:tas:wpaper:16874
Contact details of provider: Postal: Private Bag 85, Hobart, Tasmania 7001
Phone: +61 3 6226 7672
Fax: +61 3 6226 7587
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