World Imbalances and Macroeconomic Adjustments: A Three-Country Stock-Flow Consistent Model with Fixed or Flexible Prices

Abstract:     
World macroeconomic adjustments are analysed with a three‐country Stock‐Flow Consistent (SFC) models. Three SFC models are considered, the first one with a fixed dollar–yuan parity including a version with Chinese foreign reserves' diversification, the second with a flexible dollar–yuan parity which can be freely floating or following a more managed float, the third one being a generalization of the two others with flexible prices instead of constant prices. The fixity of the dollar–yuan parity limits the adjustments facing shocks and world imbalances while a more flexible dollar–yuan exchange rate appears as a powerful adjustment mechanism to reduce these imbalances.

Number of Pages in PDF File: 31

Accepted Paper Series