IDEAS home Printed from https://ideas.repec.org/p/cop/wpaper/g-309.html
   My bibliography  Save this paper

The Effects of Financial Decoupling of the U.S. and China: Simulations with a Global Financial CGE Model

Author

Listed:
  • P.B. Dixon
  • J.A. Giesecke
  • J. Nassios
  • M.T. Rimmer

Abstract

We add a financial module to the GTAP model, built around an 18-region asset-liability matrix. We simulate financial decoupling between the U.S. and China. We find that the U.S. would gain by limiting its capital 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 capital 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

  • P.B. Dixon & J.A. Giesecke & J. Nassios & M.T. Rimmer, 2020. "The Effects of Financial Decoupling of the U.S. and China: Simulations with a Global Financial CGE Model," Centre of Policy Studies/IMPACT Centre Working Papers g-309, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-309
    as

    Download full text from publisher

    File URL: https://www.copsmodels.com/ftp/workpapr/g-309.pdf
    File Function: Initial version, 2020-10
    Download Restriction: no
    File URL: https://www.copsmodels.com/elecpapr/g-309.htm
    File Function: Local abstract: may link to additional material.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kostas Mavromaras & James A. Giesecke & Peter B. Dixon & Maureen T. Rimmer, 2017. "The Economy-wide Impacts of a Rise in the Capital Adequacy Ratios of Australian Banks," The Economic Record, The Economic Society of Australia, vol. 93, pages 16-37, June.
    2. Ianchovichina,Elena & Walmsley,Terrie L. (ed.), 2012. "Dynamic Modeling and Applications for Global Economic Analysis," Cambridge Books, Cambridge University Press, number 9781107002432, October.
    3. Peter B. Dixon & Maureen Rimmer & Nhi Tran, 2019. "GTAP-MVH, A Model for Analysing the Worldwide Effects of Trade Policies in the Motor Vehicle Sector: Theory and Data," Centre of Policy Studies/IMPACT Centre Working Papers g-290, Victoria University, Centre of Policy Studies/IMPACT Centre.
    4. Ianchovichina,Elena & Walmsley,Terrie L. (ed.), 2012. "Dynamic Modeling and Applications for Global Economic Analysis," Cambridge Books, Cambridge University Press, number 9781107011694, October.
    5. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    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. J.A. Giesecke & R. Waschik & N.H. Tran, 2019. "Modelling the Consequences of the U.S.-China Trade War and Related Trade Frictions for the U.S., Chinese, Australian and Global Economies," Centre of Policy Studies/IMPACT Centre Working Papers g-294, Victoria University, Centre of Policy Studies/IMPACT Centre.
    2. James A. Giesecke & Nhi H. Tran & Robert Waschik, 2021. "Should Australia be concerned by Beijing’s trade threats: modelling the economic costs of a restriction on imports of Australian coal," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(1), pages 1-22, January.
    3. Minor, Peter & Walmsley, Terrie & Strutt, Anna, 2018. "State-owned enterprise reform in Vietnam: A dynamic CGE analysis," Journal of Asian Economics, Elsevier, vol. 55(C), pages 42-57.
    4. Ken Itakura & Hiro Lee, 2023. "Should the United States rejoin the Trans-Pacific trade deal?," International Economics and Economic Policy, Springer, vol. 20(2), pages 235-255, May.
    5. Itakura, Ken, 2019. "Incorporating Global Value Chains into the Dynamic GTAP Model [tentative results]," Conference papers 333111, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Aguiar, Angel & Corong, Erwin & van der Mensbrugghe, Dominique, 2020. "The GTAP Recursive Dynamic (GTAP-RD) Model: Version 1.0," Conference papers 333133, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Erwin Corong & Thomas Hertel & Robert McDougall & Marinos Tsigas & Dominique van der Mensbrugghe, 2017. "The Standard GTAP Model, version 7," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 2(1), pages 1-119, June.
    8. Lee, Hiro & Itakura, Ken, 2018. "The welfare and sectoral adjustment effects of mega-regional trade agreements on ASEAN countries," Journal of Asian Economics, Elsevier, vol. 55(C), pages 20-32.
    9. Jean Foure & Angel Aguiar & Ruben Bibas & Jean Chateau & Shinichiro Fujimori & Julien Lefevre & Marian Leimbach & Luis Rey-Los-Santos & Hugo Valin, 2020. "Macroeconomic Drivers of Baseline Scenarios in Dynamic CGE models: Review and Guidelines Proposal," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 5(1), pages 28-62, June.
    10. Geard, Nic & Madden, John & McBryde, Emma & Moss, Rob & Tran, Nhi, 2016. "Modeling the economic impacts of epidemics in developing countries under alternative intervention strategies," Conference papers 332734, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Ken Itakura, 2020. "Evaluating the Impact of the US–China Trade War," Asian Economic Policy Review, Japan Center for Economic Research, vol. 15(1), pages 77-93, January.
    12. Ken Itakura, . "Assessing the Economic Effects of the Regional Comprehensive Economic Partnership on ASEAN Member States," Chapters, in: Lili Yan Ing (ed.), East Asian Integration (First Edition), chapter 1, pages 1-24, Economic Research Institute for ASEAN and East Asia (ERIA).
    13. Ken Itakura & Yoshifumi Fukunaga & Ikumo Isono, 2013. "A CGE Study of Economic Impact of Accession of Hong Kong to ASEAN-China Free Trade Agreement," Working Papers DP-2013-06, Economic Research Institute for ASEAN and East Asia (ERIA).
    14. Aguiar, Angel H. & Walmsley, Terrie L., 2014. "The importance of timing in the U.S. response to undocumented immigrants: A recursive dynamic approach," Economic Modelling, Elsevier, vol. 41(C), pages 253-262.
    15. Johnson, Justin Andrew & Baldos, Uris Lantz & Hertel, Thomas & Nootenboom, Chris & Polasky, Stephen & Roxburgh, Toby, 2020. "Global Futures: Modelling the global economic impacts of environmental change to support policy-making," Technical Papers 323944, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    16. Fang Yang & Chuanxin Zou & Chutong Li, 2023. "The Impact of Carbon Tariffs on China’s Agricultural Trade," Agriculture, MDPI, vol. 13(5), pages 1-17, May.
    17. Markandya, A. & Antimiani, A. & Costantini, V. & Martini, C. & Palma, A. & Tommasino, M.C., 2015. "Analyzing Trade-offs in International Climate Policy Options: The Case of the Green Climate Fund," World Development, Elsevier, vol. 74(C), pages 93-107.
    18. Lakatos, Csilla & Walmsley, Terrie, 2012. "Investment creation and diversion effects of the ASEAN–China free trade agreement," Economic Modelling, Elsevier, vol. 29(3), pages 766-779.
    19. Wolfgang Britz & Roberto Roson & Martina Sartori, 2019. "SSP Long Run Scenarios for European NUTS2 Regions," Working Papers 2019: 22, Department of Economics, University of Venice "Ca' Foscari".
    20. Rebecca Sta. Maria & Shujiro Urata & Ponciano S. Intal, 2017. "ASEAN @ 50 Volume 5: The ASEAN Economic Community Into 2025 and Beyond," Books, Economic Research Institute for ASEAN and East Asia (ERIA), number 2017-asean@50-5 edited by Rebecca Sta. Maria & Shujiro Urata & Ponciano S. Intal, January.

    More about this item

    Keywords

    Financial decoupling; U S -China economic relations; Trade decoupling; Financial module in GTAP; CGE simulations;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:cop:wpaper:g-309. 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: Mark Horridge (email available below). General contact details of provider: https://edirc.repec.org/data/cpmonau.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.