IDEAS home Printed from https://ideas.repec.org/a/gta/jnlgea/v6y2021i2p1-30.html
   My bibliography  Save this article

Finance in a global CGE model: the effects of financial decoupling between the U.S. and China

Author

Listed:
  • Peter Dixon
  • James Giesecke
  • Jason Nassios
  • Maureen Rimmer

Abstract

We add to the GTAP model a financial module built around an 18-region asset-liability matrix. A financial agent in each region takes account of expected rates of return in allocating the region’s financial budget between domestic capital and financial assets in each other region. Using GTAP with the financial module in place, we simulate financial decoupling between the U.S. and China. The results show that the U.S. would gain by limiting its financial flows to China, leading to a redirection of finance to the domestic economy. This would stimulate investment in the U.S. with favorable effects on employment, capital stocks, real GDP, wealth, and real wage rates. At the same time investment in China would decline with negative effects on the Chinese economy. Similarly, China would gain by limiting its financial flows to the U.S. and the U.S. would lose. In a tit-for-tat situation in which each country reduces its financial asset holding in the other country by x per cent, the winner would be China. We conduct additional simulations to compare the effects of trade decoupling with those of financial decoupling.

Suggested Citation

  • Peter Dixon & James Giesecke & Jason Nassios & Maureen Rimmer, 2021. "Finance in a global CGE model: the effects of financial decoupling between the U.S. and China," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 6(2), pages 1-30, December.
    • Handle: RePEc:gta:jnlgea:v:6:y:2021:i:2:p:1-30
    DOI: https://doi.org/10.21642/JGEA.060201AF
    as

    Download full text from publisher

    File URL: https://www.jgea.org/ojs/index.php/jgea/article/view/152/145
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.21642/JGEA.060201AF?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
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert Waschik & James Giesecke & Craig Emerson, 2023. "Trade Facilitation in APEC-exCRU," Centre of Policy Studies/IMPACT Centre Working Papers g-342, Victoria University, Centre of Policy Studies/IMPACT Centre.

    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:gta:jnlgea:v:6:y:2021:i:2:p:1-30. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Jeremy Douglas (email available below). General contact details of provider: https://edirc.repec.org/data/gtpurus.html .

    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.