Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/109604
Authors: 
McKinnon, Ronald
Liu, Zhao
Year of Publication: 
2013
Series/Report no.: 
ADB Working Paper Series on Regional Economic Integration 107
Abstract: 
Under near zero United States (US) interest rates, the international dollar standard malfunctions. Emerging markets with naturally higher interest rates are swamped with "hot money" inflows. Emerging market central banks intervene to prevent their currencies from rising precipitously. They subsequently lose monetary control and begin inflating. Primary commodity prices rise worldwide unless interrupted by an international banking crisis. This cyclical inflation on the dollar’s periphery only registers in the US core consumer price index (CPI) with a long lag. The zero interest rate policy also fails to stimulate the US economy as domestic financial intermediation by banks and money market mutual funds is repressed. Because the People’s Republic of China (PRC) is forced to keep its interest rates below market-clearing levels, it also suffers from "financial repression," although in a form differing from that in the US.
Subjects: 
Dollar standard
carry trades
commodity price inflation
JEL: 
F31
F32
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/igo
Document Type: 
Working Paper

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