Under the condition of open economy, a country's monetary policy to achieve internal and external balance is influenced by other countries' economic policies, so the international coordination of monetary policy becomes very important. Based on the interdependent Mundell-Fleming model, this paper analyzes the spillover effect of monetary policy through income mechanism and interest rate mechanism. On the basis of this model, this paper analyzes the influence of American expansionary monetary policy on China's economic operation and the conflict between American expansionary monetary policy and China's tight monetary policy under the background of China-US balance of payments imbalance. Finally, this paper puts forward some suggestions to coordinate the conflict of monetary policy.
[Keywords:] international balance of payments imbalance, monetary policy, spillover effect, international coordination
I. Introduction
The balance of payments imbalance between China and the United States is one of the main characteristics of the current world economy, which is manifested in the gradual expansion of the balance of payments deficit in the United States and the continuous expansion of the balance of payments surplus in China. In order to weaken the impact of the subprime mortgage crisis in the United States, the United States has cut interest rates twice since 2007, and the benchmark interest rate and discount rate in the United States have dropped from 65,438+65,438 in February+0 in February 2007 to 4.25% and 4.75% respectively. Many studies have pointed out that the Federal Reserve will further cut interest rates next year. Britain, which was also affected by the subprime mortgage crisis, followed closely with expansionary monetary policy, while Japan has been pursuing ultra-low interest rate policy since the bursting of the 1990 bubble economy. The scale of the double surplus of the balance of payments is constantly expanding, and inflation is intensifying (in June 2007, the inflation rate reached 6.9%+0 1, the highest point since June1). To this end, China monetary policy authorities have implemented a tight monetary policy, raising interest rates six times since 2007, and the one-year loan interest rate has now reached 7.29%. With the improvement of China's economic openness and economic dependence, the expansionary monetary policy represented by the United States will inevitably have an impact on China's economic operation and monetary policy. With the help of the interdependent Mundell-Fleming model, this paper studies the influence of loose monetary policy in the United States on China's macroeconomic operation and the conflict between loose monetary policy and tight monetary policy in China, and puts forward some ways and suggestions for international coordination of monetary policy.
Second, the spillover effect of monetary policy: based on the analysis of Mundell-Fleming model in two countries.
The reason why a country's monetary policy can affect other countries is mainly the spillover effect. This part modifies the Mundell-Fleming model under the condition of small countries' open economy, constructs the interdependent Mundell-Fleming model between the two countries, and analyzes the mechanism and influence of the spillover effect of monetary policy. Suppose there are two countries, A and B, whose economic policies influence each other, and their national income depends not only on their own income level, but also on the income level of another country. Country A has a floating exchange rate system, while country B has a fixed exchange rate system, and the two countries decide their own interest rates independently. Then the Mundell-Fleming model of interdependence between the two countries is as follows:
Among them, (1)(2) represents the commodity market equilibrium of A and B respectively, (3) and (4) represents the money market equilibrium of A and B respectively. Y stands for national income, A () stands for domestic absorption level, T () stands for trade surplus, P stands for price, E stands for nominal exchange rate, I stands for interest rate level, and C stands for government purchase.
From the Mundell-Fleming model of the two countries, it can be seen that the national income of country A depends not only on its own income level, but also on the income level of country B. Similarly, the national income of country B depends not only on its own income level, but also on the income level of country A. Therefore, if country A implements expansionary monetary policy at present, it will not only increase the national income, but also affect the income level of foreign nationals. In addition, the expansionary monetary policy will reduce the interest rate of country A, leading to the capital flowing from country A to country B. From the above-mentioned interdependence model of the two countries, it can be seen that the monetary policy of country A will affect the economic operation of country B through two transmission mechanisms.
First, the income mechanism. The transmission of income mechanism to monetary policy is mainly through trade channels. When a country's national income level rises, on the premise that the marginal import tendency and preference remain unchanged, it will inevitably lead to an increase in imports, which in turn will lead to an increase in exports of another country, thus leading to an increase in its trade surplus and balance of payments surplus. When country A implements an expansionary monetary policy, the national income will rise on the premise that other conditions remain unchanged. On the premise that the marginal import tendency remains unchanged, this will lead to an increase in imports. From the point of view of country B, the increase of export will lead to the increase of trade surplus and balance of payments surplus of country B. The greater the marginal import tendency of country A, the greater the import expenditure caused by the increase of income of country A, and the greater the independent export of country B, the greater the trade surplus and balance of payments surplus of country B. ..
Second, the interest rate mechanism. The transmission of interest rate mechanism to monetary policy is mainly carried out through international capital flows. The purpose of capital flow is to pursue high profits. When a country's interest rate changes, it will inevitably bring about international capital flows, which will bring about corresponding variables such as foreign exchange reserves, international payments, exchange rate changes, and then affect another country's economy. The higher the degree of international capital flow, the more obvious the transmission effect of this mechanism on the impact. A country's expansionary monetary policy will inevitably lead to the decline of its own interest rate. Because country B has a fixed exchange rate system, as long as the interest rate of country B is higher than that of country A, international capital will flow from country A to country B, which will increase the degree of foreign exchange reserves and balance of payments surplus of country B and inevitably lead to the increase of its own money supply. If the economy of country B has already appeared the trend of overheating and inflation at this time, it will certainly deepen the overheating of the economy and further strengthen the trend of rising prices.
Figure 1 vividly describes the influence of country A's expansionary monetary policy on country B. Before the implementation of expansionary monetary policy, the interest rate of country A remained at i0 level. Under the effect of expansionary monetary policy, the left figure LM0 moves to LM 1, and the interest rate level of country A drops from i0 to i 1. Suppose the initial economic equilibrium point of country B comes as scheduled, when the product market, money market and international balance of payments are balanced. After the expansionary monetary policy was implemented in country A, the IS0 of country B moved to IS 1 under the conduction of income mechanism and interest rate mechanism, while the balance of payments showed a surplus, and the balance of payments curve moved from BP0 to BP 1. In order to maintain the stability of the exchange rate, country B sold its own currency, which increased the money supply of country B, resulting in the right shift of the money market equilibrium curve from LM0 to LM 1.
Third, the conflict between the expansionary monetary policy of the United States and China's macro-economy and tight monetary policy.
In recent years, the global international income imbalance has become one of the typical characteristics of the world economy. On the one hand, this imbalance is manifested in the huge current account deficit of the United States, on the other hand, it is manifested in the large-scale current account surplus and high foreign exchange reserves of developing countries represented by China. China has become one of the most important trade surplus countries in the United States (see table 1). Affected by the subprime mortgage crisis, the United States began to implement expansionary monetary policy in 2007. At present, the benchmark interest rate and the benchmark discount rate of loans in the United States have dropped to 4.25% and 4.75% respectively.
Under the background of global balance of payments imbalance, China's double balance of payments surplus is expanding, and the scale of foreign exchange reserves is expanding. By the end of September 2007, China's foreign exchange reserves had reached143.36 billion US dollars, up by 456.438+0% year-on-year. As long as the surplus is increasing, foreign exchange reserves will increase and excess liquidity will further intensify. On the one hand, excess liquidity is manifested in the continuous rise of M2/GDP, on the other hand, it is manifested in the rise of general commodity prices and asset prices (see Figure 2), and the inflation trend and signs of economic overheating are obvious. To this end, China has implemented a tight monetary policy, the purpose of which is to prevent rapid economic growth from becoming overheated, and to prevent prices from evolving from structural rise to overall inflation. However, the current expansionary monetary policy of western countries, represented by the United States, not only aggravates the internal and external imbalance of China's current macro-economy, but also intensifies the excess domestic liquidity, further increasing the pressure of RMB appreciation, and the expansionary monetary policy weakens the effect of China's tight monetary policy. Taking the United States as the representative, this paper analyzes the influence of American monetary policy expansion on China's economic operation by using the Mundell-Fleming model. Figure 3 shows the expansion of American monetary policy, the decrease of interest rate and the increase of income level. Figure 4 shows the influence of US monetary policy expansion on China's economic operation and tightening monetary policy. In Figure 4, BP0 IS located above the intersection of IS and LM0, indicating the balance of payments surplus. China monetary policy authorities tightened monetary policy, and LM0 moved to LM 1 to the left, and the interest rate in China rose. The expansionary monetary policy of the United States depressed interest rates, international capital flowed into China, and the rising national income of the United States increased the export of China products through trade channels. These two factors both led to the increase of China's balance of payments surplus, and BP0 moved to the position of BP 1. Due to China's fixed exchange rate system, the increase of foreign exchange reserves brought by the balance of payments surplus is translated into the increase of China's money supply, thus LM 1 moves down to LM2, and the effect of tightening monetary policy is seriously weakened. Specifically, the impact of expansionary monetary policy in the United States on China's economic operation and tight monetary policy is manifested in the following three aspects:
First, the loose monetary policy in the United States has aggravated the internal imbalance in China, making the excess liquidity more rampant.
The expansionary monetary policy of the United States will inevitably increase the demand for imported products while expanding domestic output. On the premise that its marginal import tendency remains unchanged, this means the expansion of China's exports and the increase of its trade surplus. The result must be the expansion of China's balance of payments surplus and the increase of foreign exchange reserves. Under the compulsory foreign exchange settlement and sale system, the base currency will increase, the money supply will be further expanded under the influence of money surplus, and the excess liquidity will be more rampant. This makes the already unbalanced internal economic problems more serious. In June 2007, the year-on-year growth rate of China's CPI reached 6.9%, reaching a new high of 1 1 year. In addition, in the case of limited investment channels for micro-investors, these surplus funds enter the stock market and real estate, which makes the stock price and real estate price soar. According to the situation of the stock market in the past year, China began to show signs of asset price bubbles. Since June 2006, 65438+ 10, the number of accounts opened has increased month by month, from 73 million in June 2006 to 65438+26 million in September 2007, among which a considerable proportion are students and retired employees. The transaction amount in the stock market increased from 356 1 100 million yuan in June 2006 to 462882 million yuan in September 2007. In less than two years, the transaction amount increased by 12 times, reaching the peak of 5,894.4 billion yuan in May 2007. The Shanghai Composite Index rose from 1 16 1 at the end of February 2005 to 5552 in September 2007, with an appreciation of nearly five times, while the Shenzhen Component Index rose from 2863 at the end of 2005 to 18864 in September 2007, with some appreciation. In the process of soaring stock prices, all stocks rose together.
Second, the expansionary monetary policy of the United States has intensified the pressure of RMB appreciation.
The loose monetary policy in the United States lowered interest rates. Driven by the profitability of capital, capital will flow from countries and regions with low interest rates to countries and regions with high interest rates. Under the expectation that China's interest rate is much higher than that of the United States and RMB appreciation, a large amount of surplus capital will enter China. These surplus capitals enter China through direct investment, QFII and other legal channels and illegal channels. The influx of these international capitals will inevitably generate a large demand for RMB, which will further increase people's appreciation pressure, and China's monetary policy authorities will face leisure for policy adjustment.
The appreciation of RMB may greatly reduce the competitiveness of China products in the international market, but in the short term, the appreciation of RMB will not necessarily reduce China's exports, that is, it will not necessarily reduce the demand for China products in the United States, the European Union and other countries, because the demand for many China products in these countries is inflexible. If the RMB does not appreciate, China will face strong pressure from the United States, the European Union and other countries for RMB appreciation. This made China fall into the situation of "Plaza Agreement" in the mid-1960s. 1In the mid-1980s, the United States had a serious balance of payments deficit, accounting for more than 30% of its total deficit with Japan. Therefore, the United States strongly urged the yen to appreciate in order to improve its balance of payments situation. Under the pressure of the United States, Japan, which is pursuing the transformation from an economic power to a political power, is constantly increasing the value of the yen. However, due to the mistakes of its own economic system and monetary policy, Japan is in danger of falling into a bubble economy. After the bubble burst, Japan fell into a vicious circle of zero growth, which was called Japan's "lost decade". Therefore, under the pressure of RMB appreciation, when China participates in international monetary policy coordination, it must learn from Japanese experience to ensure the independence of monetary policy.
Third, the loose monetary policy of the United States weakened the effect of China's tight monetary policy.
The expansionary monetary policy of the United States not only increases its own output, but also brings about an increase in China's income level through the income mechanism, which increases the risk of economic overheating and also increases China's trade surplus. The interest rate mechanism of expansionary monetary policy brought in international capital inflow, which further increased China's balance of payments surplus. Under the near-fixed exchange rate system and the compulsory foreign exchange settlement and sale system, the balance of payments surplus greatly reduces the tightening effect of the tightening monetary policy by increasing the base currency. In order to offset the increase in money supply brought by foreign exchange reserves, the monetary authorities can only further tighten the money supply. If the US monetary policy expands to a greater extent, China monetary policy authorities will adopt a tighter monetary policy. However, if China's monetary policy is further tightened, the spread between China and the United States will be larger, more international capital will flow into China, and it will be more difficult for the tightened monetary policy to achieve the expected results and goals. Sheng Wang (2006) used the data of 1992 to 200 1 to empirically study the impact of economic fluctuations in the United States, Japan and the European Union on China's interest rate level, and concluded that economic fluctuations in the United States have the most significant impact on China's interest rate level, with the elasticity as high as 1.6, while economic fluctuations in Japan have no significant impact on China's interest rate level, while the European Union lives in.
To sum up, the expansionary monetary policy of western countries represented by the United States not only interferes with the internal operation of China's macro-economy, but also seriously weakens the effect of the current tightening monetary policy. It is impossible to return to a closed economy, and it is unrealistic and irrational to cut off all international capital flows into China. Therefore, at present, the economic dependence is getting higher and higher, and the realization of internal and external equilibrium is more and more restricted by other countries' economic policies. China must actively participate in the coordination of monetary policy and strive to maximize its interests in the process of monetary policy coordination.
Fourth, policy recommendations.
First, improve the RMB exchange rate formation mechanism. The expansionary monetary policy of the United States has brought about the surplus of China's international payments and the expansion of foreign exchange reserves through the income mechanism and interest rate mechanism. Under the fixed exchange rate system and compulsory settlement system, it has brought about an increase in the money supply and made the domestic economic imbalance more serious. Therefore, perfecting the RMB exchange rate formation mechanism has become one of the ways to reduce the international conflict of monetary policy. At present, we can gradually realize the transformation from the compulsory settlement and sale of foreign exchange to the willing settlement and sale of foreign exchange, expand the floating range of the people's exchange rate, adjust the supply and demand of foreign exchange by using the market mechanism, adjust the exchange rate in an orderly and balanced direction, weaken the constraint of exchange rate stability requirements on the effect of local currency policy, improve the independence and effectiveness of monetary policy, and give play to the role of exchange rate as a price lever to adjust the balance of payments.
Second, gradually open up the financial sector and effectively manage international capital flows. With the deepening of economic and financial opening up, international capital flows will accelerate, so it is necessary to strengthen the effective management and rational utilization of international capital flows and establish a mechanism to prevent the impact of international capital flows. When the interest rate in China is higher than that in western developed countries, a large amount of capital will be absorbed into China. Once a crisis occurs, it will pose a threat to China's economic stability. Therefore, we should advocate the establishment of an international supervision system for capital flows and levy Tobin tax when necessary.
Third, strengthen the exchange of monetary policy information between China and other countries. China can exchange international information on its monetary policy, including the views of governments on the current exchange rate level, the willingness to intervene in the foreign exchange market, the orientation, objectives and results of domestic macroeconomic policies, etc. On the basis of information exchange, we should adopt a consistent macroeconomic stance as far as possible to promote the coordination of monetary policies. The current strategic economic dialogue between China and the United States has this nature.
Fourth, strengthen cooperation with international financial institutions and establish a coordination mechanism for rules. International financial organizations such as the International Monetary Fund and the World Bank are still the main institutions for coordinating international monetary policy. In the future, China should actively cooperate with these international organizations, strengthen cooperation with these institutions, and better achieve international coordination through clear rules, agreements and terms, so as to solve the exchange rate policy and monetary policy conflicts between China and other countries.
Fifth, continue to call for the improvement of the international monetary system and strive to improve the coordination mechanism of international economic policies. As a leading country in the world economy, the United States has always pursued the strategy of "my currency, your problem" to participate in international economic affairs. For some time to come, the US dollar will still occupy a dominant position in the international monetary system, which will bring instability to the international reserve system and may lead to large fluctuations in the exchange rates of major international currencies, which is extremely unfavorable to developing countries that are rising and taking off. Therefore, if China wants to join the international coordination of macroeconomic policies and give full play to the role of a strong currency, it must appeal to the international community to establish a new international economic and financial coordination mechanism to create conditions for China's monetary policy to further integrate into the world economy in the future.