WORLD IMBALANCES, EXCHANGE RATES AND MACROECONOMIC ADJUSTMENTS: A "STOCK FLOW CONSISTENT" THREE COUNTRIES MODEL

Macroeconomic adjustments at the world level are analysed with a "stock flow consistent" three countries model in the lines of Godley and Lavoie [2004] and Zhao and Lavoie [2008]. Two versions are considered, the first one with a fixed yuan-dollar parity, but with the possibility of introducing a diversification of foreign reserves by the Chinese Central Bank, the second with a flexible yuan-dollar parity according to various mechanisms. Facing shocks the fixity of the yuan parity reduces adjustments of the world imbalances at the benefit of China and at the expense of the United States and Europe. A diversification of Chinese foreign reserves mainly changes adjustment mechanisms at the expense of Europe due to the dollar depreciation. A flexible dollar-yuan parity appears, on the contrary, as an efficient mechanism to reduce world imbalances.