Dynamics of output with real exchange rate in open economy system

The research of a small open economy system dynamics is based on the goods and finance markets equilibriums by modeling with gradually adjusting nominal exchange rates and prices in crisis period. It discusses the dynamics of two scenarios of successful and failed currency peg at low and high interest rate elasticity of the aggregate investment in the case of partial liability dollarization and short term policy responses of decreasing interest rate by monetary authorities. At last, it tries to describe the dynamics of output with real exchange rate in China through empirical analysis.