IDEAS home Printed from https://ideas.repec.org/a/bpj/glecon/v12y2012i2n7.html
   My bibliography  Save this article

Stabilization Policy in an Economy with Two Exchange Rate Regimes

Author

Listed:
  • Arndt Sven W.

    (Claremont McKenna College)

Abstract

This paper uses a flex-price open economy macro model to examine the effectiveness of U.S. monetary and fiscal policies when the dollar floats freely against the euro, but is fixed against the Chinese yuan. It is assumed that capital mobility is high between the U.S. and the Eurozone, but low between the U.S. and China. The model allows for short-run price flexibility and imperfect substitutability between domestic and foreign financial assets.The focus is on the implications for the efficacy of U.S. macro stabilization policies of China's fixed-rate strategy. While many countries have pegged their currencies to the dollar, China is large enough to have an impact. It is shown that its large size enables China to impede the effectiveness of U.S. macroeconomic policies. Indeed, while the U.S. is officially tagged as an independent floater, Chinese intervention is capable of interfering with dollar-euro flexibility and thereby creates outcomes that are more consistent with policy under fixed rates.

Suggested Citation

  • Arndt Sven W., 2012. "Stabilization Policy in an Economy with Two Exchange Rate Regimes," Global Economy Journal, De Gruyter, vol. 12(2), pages 1-15, June.
    • Handle: RePEc:bpj:glecon:v:12:y:2012:i:2:n:7
    DOI: 10.1515/1524-5861.1846
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/1524-5861.1846
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/1524-5861.1846?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Sven W. Arndt, 2012. "Stabilization Policy in an Economy with Two Exchange Rate Regimes," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 12(2), pages 1-15, April.
    2. Jeffrey A. Frankel & Shang-Jin Wei, 2007. "Assessing China's exchange rate regime [‘Working with the IMF to strengthen exchange rate surveillance’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 22(51), pages 576-627.
    3. Xing, Yuqing, 2012. "Processing trade, exchange rates and China's bilateral trade balances," Journal of Asian Economics, Elsevier, vol. 23(5), pages 540-547.
    4. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
    5. Yuqing Xing, 2011. "Processing Trade, Exchange Rates, and the People’s Republic of China’s Bilateral Trade Balances," Macroeconomics Working Papers 23266, East Asian Bureau of Economic Research.
    6. Arndt, Sven W., 2011. "Adjustment in an Open Economy with Two Exchange-Rate Regimes," The Journal of Economic Asymmetries, Elsevier, vol. 8(2), pages 11-22.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arndt Sven W., 2012. "The "Great Moderation" in a Dual Exchange Rate Regime," Global Economy Journal, De Gruyter, vol. 12(4), pages 1-12, December.
    2. Jeffrey Frankel & Daniel Xie, 2010. "Estimation of De Facto Flexibility Parameter and Basket Weights in Evolving Exchange Rate Regimes," American Economic Review, American Economic Association, vol. 100(2), pages 568-572, May.
    3. Patnaik, Ila & Shah, Ajay & Sethy, Anmol & Balasubramaniam, Vimal, 2011. "The exchange rate regime in Asia: From crisis to crisis," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 32-43, January.
    4. Reza Y. Siregar & C.S. Lim, Vincent, 2011. "Real Sector Propagation of the Recent Global Financial Crisis: An Integrative Report," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp83, April.
    5. Subramanian Arvind & Kessler Martin, 2013. "The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?1)," Journal of Globalization and Development, De Gruyter, vol. 4(1), pages 49-94, August.
    6. Jianhong Zhang & Chaohong Zhou & Arjen van Witteloostuijn & Haico Ebbers, 2013. "What does the Chinese market need? An empirical study of the determinants of Chinese imports, 1996--2008," Asia Pacific Business Review, Taylor & Francis Journals, vol. 19(3), pages 402-420, July.
    7. Arndt, Sven W., 2011. "Adjustment in an Open Economy with Two Exchange-Rate Regimes," The Journal of Economic Asymmetries, Elsevier, vol. 8(2), pages 11-22.
    8. Jeffrey A. Frankel, 2009. "New Estimation Of China'S Exchange Rate Regime," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 346-360, August.
    9. THORBECKE, Willem, 2012. "East Asian Supply Chains and Relative Prices: A survey of the evidence," Policy Discussion Papers 12006, Research Institute of Economy, Trade and Industry (RIETI).
    10. Zhou, Jing & Latorre, María C., 2014. "How FDI influences the triangular trade pattern among China, East Asia and the U.S.? A CGE analysis of the sector of Electronics in China," Economic Modelling, Elsevier, vol. 44(S1), pages 77-88.
    11. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    12. José Osler Alzate Mahecha, 2013. "Sudden stops in emerging markets: How to minimize their impact on GDP?," Documentos CEDE 10547, Universidad de los Andes, Facultad de Economía, CEDE.
    13. Pourroy, Marc, 2012. "Does exchange rate control improve inflation targeting in emerging economies?," Economics Letters, Elsevier, vol. 116(3), pages 448-450.
    14. Ftiti, Zied & Aguir, Abdelkader & Smida, Mounir, 2017. "Time-inconsistency and expansionary business cycle theories: What does matter for the central bank independence–inflation relationship?," Economic Modelling, Elsevier, vol. 67(C), pages 215-227.
    15. Jong-Wha Lee & Kwanho Shin, 2010. "Exchange Rate Regimes and Economic Linkages," International Economic Journal, Taylor & Francis Journals, vol. 24(1), pages 1-23.
    16. repec:got:cegedp:84 is not listed on IDEAS
    17. Kang, Hyunju, 2013. "Behind the scenes of abandoning a fixed exchange rate regime," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3145-3156.
    18. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2005. "The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 423-438, August.
    19. Wong, Kin-Ming & Chong, Terence Tai-Leung, 2016. "Does monetary policy matter for trade?," International Economics, Elsevier, vol. 147(C), pages 107-125.
    20. Santiago Camara, 2021. "Spillovers of US Interest Rates: Monetary Policy & Information Effects," Papers 2111.08631, arXiv.org, revised Feb 2023.
    21. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:glecon:v:12:y:2012:i:2:n:7. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.