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U.S. monetary policy and China's exchange rate policy during the great recession
Author(s) -
Tervala Juha
Publication year - 2019
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1652
Subject(s) - liberian dollar , economics , exchange rate , recession , monetary economics , china , monetary policy , u.s. dollar index , value (mathematics) , international economics , effective exchange rate , us dollar , macroeconomics , finance , machine learning , political science , law , computer science
I examine the transmission of expansionary U.S. monetary policy in cases where emerging economies—including China—peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as they would be under a flexible exchange rate. The value of the dollar peg is typically positive for the dollar bloc because the United States can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. The dollar peg is typically harmful to the United States, providing a rationale for criticism of China's exchange rate policy during the Great Recession.