Luận Văn Essays on Income Inequality, Exchange Rate, and Policy Coordination - Xiaojun Yang

Essays on income inequality, exchange rate, and policy coordination

The goal of this dissertation is to develop and to use computational methods to study issues in policy coordination, exchange rates and income inequality. The topic of policy formulation among interdependent economies has received much attention in the literature. In the first essay a two-country model is used to illustrate the interdependence of China's and Hong Kong's economies. Not surprising, we find that the policy effect is asymmetric, due to difference in size. Shocks to the Chinese economy will affect Hong Kong's stable economic growth. In order for Hong Kong to keep a stable growth, both governments must act in certain ways. Particularly, by importing more China can help Hong Kong's economy, especially during the financial crisis years. We find that fiscal policy is more effective than monetary policy in affecting economic activities in this model. In the second essay, we develop a model to study the behavior of the Yuan/Dollar exchange rate. The parameter values estimated for the model are such that when China increases its relative money supply, the exchange rate appreciates, which is different than the conventional result. Also the parameter values indicate that in order for China to have a higher level of GDP, China has to increase its money supply; and for a stable exchange rate, China either decreases its money supply then increases it or increases its money supply during the entire period. The right policy hinges on the desired path for the exchange rate. Since the model is simple in essence, the results should be interpreted with caution. The third essay analyses the contribution of different factors to the determination of income inequality. The questions regarding whether greater income inequality is conducive to China's growth and the role of degree of reform for growth and inequality have been studied in the paper. We find a positive correlation between income inequality and growth, that reform plays a dominant role in determining growth and income inequality, and that steady growth can not be emphasized too much, otherwise the reform process will be reversed, which is not practical. Finally, the tradeoff between income inequality and growth is analyzed.
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[TH]Format:[/TH]
[TD]Dissertation[/TD]
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[TR]
[TH]Author(s):[/TH]
[TD]Yang, Xiaojun[/TD]
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[TR]
[TH]Published:[/TH]
[TD]2003[/TD]
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[TR]
[TH]Language:[/TH]
[TD]English

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Table of Contents
Chapter One: Introduction 1
Chapter Two: Economic Interaction and Policy Coordination Between China
and Hong Kong 3
2.1 Introduction 3
2.2 The Model 4
2.3 The Optimal Control Theory 10
2.4 The Model with Price Variables . 32
2.4.1 The Model Equations . 32
2.4.2 Simulations . 39
2.4.2.1 Historical Simulation . 39
2.4.2.2 Policy Simulation 43
2.4.2.2.1 Fiscal Expansion . 43
2.4.2.2.2 Monetary Expansion . 49
2.5 The Model with Price Variables in the Control Theory Framework . 50
Chapter Three: Yuan - Dollar Exchange Rate Model . 62
3.1 Introduction 62
3.2 Developments of China's Foreign Exchange System 63
3.3 The Model 71
3.3.1 The Model Equations . 72
3.3.2 Data 74
3.3.3 Estimation . 75
3.3.4 Policy Simulation . 77
3.4 The Control 82
3.4.1 The Control Framework . 82
3.4.2 Results and Experiments 86 viii
3.5 Conclusion . 95
Chapter Four: Reform, Inequality, and Growth 96
4.1 Introduction 96
4.2 Factor Consideration 97
4.3 The Model 102
4.4 Control and Sensitivity Analyses . 112
4.4.1 The Control Framework . 112
4.4.2 Sensitivity Analysis 117
4.4.2.1 Sensitivity Analysis from 1991 to 1998 119
4.4.2.2 Sensitivity Analysis from 1998 to 2010 132
4.4.2.2.1 Caring More about Income Inequality 135
4.4.2.2.2 Caring More about Growth Rate . 140
4.4.2.2.3 Greater Difficulty to Further Reform 144
4.4.2.2.4 Inequality verse Growth . 149
4.5 Conclusion . 152
Appendix A-1 Historical Simulation . 154
Appendix A-2 Simulation Results for China's Fiscal Expansion 158
Appendix A-3 Duali Input File 1 162
Appendix A-4 Duali Input File 2 179
Appendix B-1 Comparison of Different Money Supply . 198
Appendix B-2 Duali Input File 199
Appendix C-1 Constant Inequality, Growth and Inflation 204
Appendix C-2 Duali Input File 206
Appendix D-1 Data-China 212
Appendix D-2 Data-Hong Kong . 220 ix
Appendix D-3 Data-US . 226
Bibliography . 228
Vita . 231