Currency Internationalization and the International Price System |
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Authors: | Hailong Jin Wisdom Takumah Josiah Jorenby |
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Institution: | 1.South Dakota State University,Brookings,USA;2.Emory University,Atlanta,USA |
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Abstract: | Although China, now the world’s second largest economy and largest goods trading nation, has rolled out the ambitious currency internationalization protocol while maintaining strict capital controls for nearly a decade, the implications of this unique reform path on the international economy still present uncertainties. In this paper, we fill in this gap by developing a two country, two-goods model to investigate the impacts of currency internationalization on the international price system, which consists of goods market and factor market interactions. We propose a critical condition of sustainable currency internationalization and reveal high international price sensitivity to exchange rate adjustments. |
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