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ID: 152507

Exchange rate regime, financial market bubbles and long-term growth in China: lessons from Japan / Schnabl, Gunther

Schnabl, Gunther	Journal Article
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Summary/Abstract

Since 2014, capital inflows into China have turned into capital outflows, reversing the gradual appreciation path of the renminbi against the US dollar into an erratic depreciation path. The paper explains the current capital outflows by comparing China and Japan with respect to the impact of exchange rate expectations on speculative capital flows. It is argued that both in China and Japan, given benign liquidity conditions in the USA, policy-induced appreciation expectations have generated capital inflows that have contributed to overinvestment and financial market bubbles. The current reversal of capital flows is seen as a signal that the bubble in China has burst. To stabilize growth in China and to discourage speculative capital outflows a fixed exchange rate to the dollar is recommended. Given Japan's experience and given that China's foreign assets remain high, the depreciation pressure on the Chinese renminbi can be expected to abate.

Key Words

Japan ; China ; Exchange Rate Policy ; Capital Controls ; Rebalancing ; Secular Stagnation

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ID: 157498

Global macroeconomic imbalances after the crisis: from the great moderation to secular stagnation / Vermeiren, Mattias

Vermeiren, Mattias	Journal Article
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After the global financial crisis, economists have been downbeat about the growth prospects of the capitalist world economy, leading many to argue that we have re-entered a period of “secular stagnation”. The phenomenon of secular stagnation is intrinsically connected to the evolution of global macroeconomic imbalances. During the pre-crisis era of the “Great Moderation”, the widening of global and European trade imbalances temporarily alleviated the problem of secular stagnation by forging a symbiotic yet unsustainable relationship between debt-financed consumption-led growth models in deficit countries and export-led growth models in surplus countries. The re-surfacing of secular stagnation and the asymmetric adjustment of these imbalances after the crisis can both be traced back to the domestic political constraints experienced by many advanced market economies in trying to revive their pre-crisis growth models.

Key Words

Varieties of Capitalism ; Euro Crisis ; Secular Stagnation ; Global Financial Crisi ; Imbalances ; Great Moderation

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