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.

A Study of the Diversification of China's Foreign Reserves Within a Three‐country Stock‐flow Consistent Model

“…For a critique of interest parity assumptions from a post-Keynesian perspective which is consistent with the present paper, seeLavoie (2000Lavoie ( , 2002.5 There is also another recent paper, that ofGossé (2009), which is somewhat between ours and that ofBlanchard et al (2005a). See alsoMazier and Tiou-Tagba Aliti (2009).…”

Price mechanism and endogenous productivity in an open economy stock‐flow consistent model

“…Imbalances at a world level have been studied by Mazier and Aliti (2012) in a SFC three‐country model including three blocs: the United States, the Eurozone and China. It drew on an earlier model developed by Lavoie and Zhao (2010).…”

“…Stock‐Flow Consistent models developed so far have mainly assumed productivity as constant (or as characterized by a fixed, exogenous rate of growth: see, for instance, the growth model prototype in chapter 11 of Godley & Lavoie, 2007). One of the few exceptions is Mazier and Aliti (2012): a version of the model presented in that paper featured an equation of productivity in line with the Verdoorn‐Kaldor law. However, the implications of this specific choice were not discussed in that work, which was mainly focused on the effects and implications of different exchange rates regimes (see also Section 2).…”

Stock‐flow Consistent Macroeconomic Models: A Survey

“…Mazier and Tiou‐Tagba Aliti () build a three‐country model along the lines of Lavoie and Zhao () and examine scenarios with pegged and flexible dollar‐Yuan parity. They conclude that the flexible parity could be an important way to address the global imbalances.…”