April 07, 2008

If one is willing to separate the traded and non-traded excess demand by countries, different combinations and permutations of the different real shocks are available. The different scenarios can then be used to characterize the different regions. For example, the supply shock characterization was quite applicable to the Chinese economy in the aftermath of fixing its exchanges rate to the U.S. dollar (i.e. from 1994-2004). During that time the Chinese inflation rate fell below the U.S. inflation rate.

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