China, the Dollar Peg and U.S. Monetary Policy

MPRA Paper from University Library of Munich, Germany

Abstract: I examine the transmission of expansionary U.S. monetary policy in case where developing countries-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 under a flexible exchange rate. The value of the dollar peg is positive for the dollar bloc because the U.S. can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. If the expenditure switching effect is weak, the peg is harmful to the U.S., providing a rationale for criticism of China's exchange rate policy.

Keywords: Dollar peg; dollar bloc; monetary policy; open economy macroeconomics; beggar-thy-neighbor (search for similar items in EconPapers)
JEL-codes: E32 E52 F30 F41 F44 (search for similar items in EconPapers)
Date: 2014-01-27
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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Related works:
Journal Article: U.S. monetary policy and China's exchange rate policy during the great recession (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:53223

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