COURSE: MACROECONOMIC - MUNDELL-FLEMING MODEL Until mid-2005, the Central Bank of China established a fixed exchange rate between its currency (yuan) and the dollar. The fixed exchange rate regime was reintroduced during the Great Recession between July 2008 and June 2010. After that date, the Chinese central bank established fluctuation bands for the yuan allowing it to move within these bands. However, the US has accused China on several occasions of taking actions to devalue its currency against the dollar. EXPLAIN and GRAPH with an open economy model with a fixed exchange rate (MUNDELL-FLEMING MODEL) the different chain effects that are generated when a country devalues its currency. From your results DETERMINE why it would be convenient for China to devalue its currency with respect to the dollar and in what way USA is harmed. Hint: according with statement on first paragrah, explain what's happens if devaluation process is defined and by Mundell-Fleming Model explain differents effects on China and USA. And don´t forget graph both cases. Thanks
COURSE:
Until mid-2005, the Central Bank of China established a fixed exchange rate between its currency (yuan) and the dollar. The fixed exchange rate regime was reintroduced during the Great Recession between July 2008 and June 2010.
After that date, the Chinese central bank established fluctuation bands for the yuan allowing it to move within these bands. However, the US has accused China on several occasions of taking actions to devalue its currency against the dollar.
EXPLAIN and GRAPH with an open economy model with a fixed exchange rate (MUNDELL-FLEMING MODEL) the different chain effects that are generated when a country devalues its currency. From your results DETERMINE why it would be convenient for China to devalue its currency with respect to the dollar and in what way USA is harmed.
Hint: according with statement on first paragrah, explain what's happens if devaluation process is defined and by Mundell-Fleming Model explain differents effects on China and USA. And don´t forget graph both cases. Thanks
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