This paper considers an alternative perspective to China’s exchange rate policy. It studies a semi-open economy where the private sector has no access to international capital markets but the central bank has full access. Moreover, it assumes limited financial development generating a large...

In this paper, we examine theoretically how corporate saving in emerging markets is contributing to global rebalancing. We consider a two-country dynamic general equilibrium model, with a developed country and an emerging country. Firms need to save in liquid assets to finance their production...

Motivated by the Chinese experience, we analyze a semi-open economy where the central bank has access to international capital markets, but the private sector has not. This enables the central bank to choose an interest rate different from the international rate. We examine the optimal policy of...

Motivated by the Chinese experience, we analyze a semi-open economy where the central bank has access to international capital markets, but the private sector has not. This enables the central bank to choose an interest rate different from the international rate. We examine the optimal policy of...

Fear of risk provides a rationale for protracted economic downturns. We develop a real business cycle model where investors with decreasing relative risk aversion choose between a risky and a safe technology that exhibit decreasing returns. Because of a feedback effect from the interest rate to...

Motivated by the Chinese experience, we analyze an economy where the central bank has access to international capital markets, but the private sector does not. The central bank is modeled as a Ramsey planner who can choose the domestic interest rate and the level of international reserves....