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Abstract: This paper proposes a novel financing scheme, reserve financing, for government infrastructure investment in China. A two-sector open economy model explores the consequences and policy implications of a surge in infrastructure investment financed by international reserves. The results show that reserve financing, coupled with a managed float exchange rate system, can maintain the country's fast growth rate while mitigating fiscal pressure on local governments. Productive infrastructure capital stimulates domestic demand, reducing the country's dependence on exports. To promote growth and maintain price stability, three factors are critical: return on infrastructure, swift fiscal adjustment, and rapid infrastructure financing. [Copyright &y& Elsevier]

Abstract: Using a small macroeconometric model that examines the determinants of India''s trade and inflation, this paper addresses the effects of a reform policy package similar to those implemented in 1991. Policy simulations using dynamic simulation method compare the responses to devaluation with the responses to tight credit policy. It is shown that the trade balance effects of tight credit policy are more enduring than that of devaluation, conditional on inflation being modelled in an open economy context. The simulations demonstrate that the devaluation actually worsens trade balance and hence devaluation cannot be an option in response to a negative trade shock, whereas the reduction in domestic credit reflecting demand contraction can produce a desirable improvement in the trade balance. [Copyright &y& Elsevier]