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China's exchange rate impasse and the weak U.S. dollar

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  • McKinnon, Ronald
  • Schnabl, Gunther

Abstract

In assessing Alexander Swoboda's great influence on economics, two themes stand out: the determinants of global inflation, particularly in the 1970s, and the choice of an exchange rate regime consistent with domestic monetary and fiscal policies. Although seemingly narrowly focused on China, our contribution to Alexander's fete straddles both themes. Since 2004, China has been backed into a situation where the renminbi is expected to go ever higher against the dollar, and this one-way bet has led to a loss of domestic monetary control. Combined with a more general flight from the U.S. dollar, the resulting monetary explosion in China contributes to the worldwide increase in primary commodity prices - with excess liquidity reminiscent of the global inflation generated by the weak dollar in the 1970s.

Suggested Citation

  • McKinnon, Ronald & Schnabl, Gunther, 2008. "China's exchange rate impasse and the weak U.S. dollar," Working Papers 73, University of Leipzig, Faculty of Economics and Management Science.
    • Handle: RePEc:zbw:leiwps:73
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    References listed on IDEAS

    as
    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    2. Gunther Schnabl & Andreas Hoffmann, 2008. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets: An Overinvestment View," The World Economy, Wiley Blackwell, vol. 31(9), pages 1226-1252, September.
    3. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia: Mitigating Conflicted Virtue," International Finance, Wiley Blackwell, vol. 7(2), pages 169-201, July.
    4. Carmen M. Reinhart, 2000. "Mirage of Floating Exchange Rates," American Economic Review, American Economic Association, vol. 90(2), pages 65-70, May.
    5. Ronald Ian McKinnon, 2007. "The US current account deficits and the dollar standard’s sustainability: A monetary approach," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(4), pages 12-23, January.
    6. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
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    Citations

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    Cited by:

    1. Andreas Schäfer & Thomas Steger, 2014. "Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 783-807, September.
    2. Grossmann, Volker & Steger, Thomas & Trimborn, Timo, 2013. "Dynamically optimal R&D subsidization," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 516-534.
    3. Quaas, Georg & Köster, Robert, 2012. "Ein Modell für die Wirtschaftszweige der deutschen Volkswirtschaft: Das "MOGBOT" (Model of Germany's Branches of Trade)," Working Papers 106, University of Leipzig, Faculty of Economics and Management Science.
    4. Casajus, André, 2012. "Solidarity and fair taxation in TU games," Working Papers 111, University of Leipzig, Faculty of Economics and Management Science.
    5. Casajus, André & Huettner, Frank, 2013. "Null players, solidarity, and the egalitarian Shapley values," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 58-61.
    6. Trela, Karl, 2014. "Klimaanpassung als wirtschaftspolitisches Handlungsfeld," Working Papers 131, University of Leipzig, Faculty of Economics and Management Science.
    7. Schnabl, Gunther & Zemanek, Holger, 2011. "Die Deutsche Wiedervereinigung und die europäische Schuldenkrise im Lichte der Theorie optimaler Währungsräume," Working Papers 94, University of Leipzig, Faculty of Economics and Management Science.
    8. Casajus, André & Hüttner, Frank, 2012. "Nullifying vs. dummifying players or nullified vs. dummified players: The difference between the equal division value and the equal surplus division value," Working Papers 110, University of Leipzig, Faculty of Economics and Management Science.
    9. Quaas, Georg, 2012. "Ein Nelson-Winter-Modell der deutschen Volkswirtschaft," Working Papers 112, University of Leipzig, Faculty of Economics and Management Science.
    10. Gan, Christopher & Ward, Bert & Ting, Su Ting & Cohen, David A., 2013. "An empirical analysis of China's equilibrium exchange rate: A co-integration approach," Journal of Asian Economics, Elsevier, vol. 29(C), pages 33-44.
    11. Gawel, Erik, 2014. "Neuordnung der Professorenbesoldung in Sachsen," Working Papers 128, University of Leipzig, Faculty of Economics and Management Science.
    12. Belke, Ansgar & Schnabl, Gunther, 2010. "Finanzkrise, globale Liquidität und makroökonomischer Exit," IBES Diskussionsbeiträge 184, University of Duisburg-Essen, Institute of Business and Economic Studie (IBES).
    13. repec:kap:iaecre:v:17:y:2011:i:4:p:386-396 is not listed on IDEAS
    14. Papenfuß, Ulf (Ed.) & Redlich, Matthias (Ed.) & Steinhauer, Lars (Ed.), 2014. "Forschend und engagiert lernen im Public Management: Befunde und Gestaltungsanregungen eines Service Learning Lehrforschungsprojektes," Working Papers 133, University of Leipzig, Faculty of Economics and Management Science.
    15. Casajus, André, 2011. "Collusion, symmetry, and the Banzhaf value," Working Papers 99, University of Leipzig, Faculty of Economics and Management Science.
    16. Quaas, Friedrun, 2014. "Orthodoxer Mainstream und Heterodoxe Alternativen: Eine Analyse der ökonomischen Wissenschaftslandschaft," Working Papers 129, University of Leipzig, Faculty of Economics and Management Science.
    17. Mai Dao & Ruo Chen, 2011. "The Real Exchange Rate and Employment in China," IMF Working Papers 11/148, International Monetary Fund.
    18. Hongyi Chen & Lars Jonung & Olaf Unteroberdoerster, 2014. "Lessons for China from Financial Liberalization in Scandinavia," Asian Economic Papers, MIT Press, vol. 13(1), pages 1-44, Winter.
    19. Gawel, Erik & Aguado, Miquel, 2014. "Neuregelungen der W-Besoldung auf dem verfassungsrechtlichen Prüfstand," Working Papers 132, University of Leipzig, Faculty of Economics and Management Science.
    20. Gawel, Erik, 2013. "Neuordnung der W-Besoldung: Ausgestaltung und verfassungsrechtliche Probleme der Komsumtionsregeln zur Anrechnung von Leistungsbezügen," Working Papers 115, University of Leipzig, Faculty of Economics and Management Science.
    21. Papenfuß, Ulf & Steinhauer, Lars & Friedländer, Benjamin, 2015. "Beteiligungsberichterstattung der öffentlichen Hand im 13-Länder-Vergleich: Erfordernisse für mehr Transparenz über die Governance und Performance öffentlicher Unternehmen," Working Papers 135, University of Leipzig, Faculty of Economics and Management Science.
    22. Casajus, André, 2012. "The Shapley value without efficiency and additivity," Working Papers 114, University of Leipzig, Faculty of Economics and Management Science.
    23. Trela, Karl, 2014. "Politische Klimaanpassungsentscheidungen in Deutschland - Defizite und Ansatzpunkte für Entscheidungsunterstützungssysteme
      [Political climate adaptation decisions in Germany - shortcomings and appl      ," Working Papers 134, University of Leipzig, Faculty of Economics and Management Science.
    24. Hoffmann, Andreas & Schnabl, Gunther, 2011. "Symmetrische Regeln und asymmetrisches Handeln in der Geld- und Finanzpolitik," Working Papers 95, University of Leipzig, Faculty of Economics and Management Science.

    More about this item

    Keywords

    Inflation; Exchange Rates; Macro Policies; Current Account Imbalances;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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