U.S. Money Supply and China's Business Cycles. Issue 5 (9th April 2018)

• Record Type: Journal Article
• Authors: Chen, Yanbin; Liu, Kai; Liu, Zhexi
• Is Part Of: Emerging markets finance & trade. Volume 54:Issue 5(2018)
• Page Start: 957
• Page End: 980
• Publication Date: 2018-04-09
• Subjects: business cycle -- capital control -- exchange rate, U.S. dollar -- world currency; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2017.1417833
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: This article models the U.S. dollar as a world currency in a global DSGE framework, and investigates the spillover effects of the U.S. money supply shock on China's economy. Exchange rate targeting and capital controls in the context of dollar hegemony are investigated. Given a positive U.S. money supply shock, both the inflation and real GDP of China will be below their steady-state levels in the medium term; while for the U.S. there is no inflation pressure. The spillover of liquidity effect exists. Cost-push effects and relative price effects are employed to discuss the transmission mechanism. Under the U.S. money supply shock, a fully liberalizing reform with no capital controls and a floating exchange rate of Renminbi is not the best reform for China.