Working Paper: NBER ID: w18404
Authors: Olivier Jeanne
Abstract: This paper presents a simple model of how a small open economy can undervalue its real exchange rate using its capital account policies. The paper presents several properties of such policies, and proposes a rule of thumb to assess their welfare cost. The model is applied to an analysis of Chinese capital account policies.
Keywords: capital account policies; real exchange rate; China; welfare cost
JEL Codes: F31; F32; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital account policies (F32) | real exchange rate (F31) |
| accumulation of foreign assets (F21) | depreciation of the real exchange rate (F31) |
| capital account policies (F32) | trade balance (F14) |
| capital account policies (F32) | trade protectionism (F13) |
| capital account policies (F32) | forced saving in domestic economy (E21) |