China and Global Macroeconomic Interdependence

29 Pages Posted: 10 Nov 2016

See all articles by Rod Tyers

Rod Tyers

Australian National University (ANU) - School of Economics; The University of Western Australia - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2016

Abstract

China is transitioning towards more inward‐focussed growth, causing adverse changes in the product and financial terms of trade in the advanced economies. At the same time, international financial markets tussle between tightening forces associated with the US recovery on the one hand and unconventional monetary expansion in Europe and Japan on the other. The way these shocks interact is examined in this paper using a global macromodel with national portfolio rebalancing and asset differentiation and a representation of unconventional monetary policy. Results are found to be sensitive to the contributions of productivity and capital accumulation to China's growth. When these are offered in realistic combination, the effects are deflationary in the United States and China, militating against contractionary US monetary policy. Monetary responses in the United States and China then combine with price targeting regimes in the EU and Japan to expand liquidity globally, amplifying impacts on financial markets and the global distribution of real investment.

Suggested Citation

Tyers, Rod, China and Global Macroeconomic Interdependence (November 2016). The World Economy, Vol. 39, Issue 11, pp. 1674-1702, 2016. Available at SSRN: https://ssrn.com/abstract=2867198 or http://dx.doi.org/10.1111/twec.12435

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