We develop a two-country two-period model able to reproduce the key qualitative aspects of the US-China co-dependency (and imbalances) as the result of the Chinese and American authorities pursuing different but complementary objectives. We show that a mercantilist reserve hoarding has served well the Chinese policy goals (fast GDP expansion and labor mobilization) and has been compatible with the US ones (high households’ consumption). If the US authorities keep monetary policy sufficiently loose, thus reducing the real value of the US liabilities held by China, this latter finds less tempting to stop financing the US external deficit, appreciate the currency and increase consumption. On the contrary, if the policy goals in China change from the maximization of GDP growth to higher households’ standards of living, a rebalancing process may be ignited. We then discuss the model and its theoretical predictions, also in light of the Five-Year Plans approved by the Chinese ruling Party.

Hoarding of international reserves in China: mercantilism, domestic consumption and US monetary policy

Bonatti, Luigi;Fracasso, Andrea
2013

Abstract

We develop a two-country two-period model able to reproduce the key qualitative aspects of the US-China co-dependency (and imbalances) as the result of the Chinese and American authorities pursuing different but complementary objectives. We show that a mercantilist reserve hoarding has served well the Chinese policy goals (fast GDP expansion and labor mobilization) and has been compatible with the US ones (high households’ consumption). If the US authorities keep monetary policy sufficiently loose, thus reducing the real value of the US liabilities held by China, this latter finds less tempting to stop financing the US external deficit, appreciate the currency and increase consumption. On the contrary, if the policy goals in China change from the maximization of GDP growth to higher households’ standards of living, a rebalancing process may be ignited. We then discuss the model and its theoretical predictions, also in light of the Five-Year Plans approved by the Chinese ruling Party.
32(C)
Bonatti, Luigi; Fracasso, Andrea
File in questo prodotto:
File Dimensione Formato  
LBAF_hoarding_JIMF2013.pdf

Solo gestori archivio

Descrizione: Articolo principale
Tipologia: Versione editoriale (Publisher’s layout)
Licenza: Tutti i diritti riservati (All rights reserved)
Dimensione 880.46 kB
Formato Adobe PDF
880.46 kB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11572/93374
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 10
  • ???jsp.display-item.citation.isi??? 10
social impact