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  • Author: John H. Makin
  • Publication Date: 05-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Governor Zhou Xiaochuan's comment is an open acknowledgement that the “adverse feedback loop,” in which financial-sector problems hurt the real economy, which in turn intensifies negative conditions in finance, has hit China hard. China's real growth rate, which peaked at 13 percent in 2007 and is heavily dependent on exports, plunged to 6.1 percent on a year-over-year basis in the first quarter of 2009. Nominal growth, a measure of the current money value of goods and services, fell even more sharply, from 21.4 percent in 2007 to 3.6 percent in the first quarter of this year. The fact that the nominal growth rate is 2.5 percent below the real growth rate suggests that, at least as far as output is concerned, deflation has taken hold at a 2.5 percent rate in China.
  • Topic: Economics, Emerging Markets, International Political Economy
  • Political Geography: China
  • Author: John H. Makin
  • Publication Date: 07-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The recent steps by the Federal Reserve to preempt deflation have—ironically and unexpectedly— prompted a surge in inflation fears both inside the United States and abroad, especially in China. Specifically, the Fed's measures to go beyond the stimulus inherent in a zero percent federal funds rate by purchasing Treasury and mortgage securities has conjured visions—especially in the eyes of major buyers of Treasury securities, China foremost— of massive money printing to underwrite trillions of dollars of additional government borrowing at low interest rates. As markets have shown, if that were the Fed's intention—which it decidedly is not—the effort would fail because excessive money printing—creating a money supply larger than the quantity of money demanded— would push up interest rates as inflation expectations rose.
  • Topic: Economics, International Political Economy, International Trade and Finance, Monetary Policy
  • Political Geography: United States, China
  • Author: John H. Makin
  • Publication Date: 09-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: More than two years have passed since the U.S. housing bubble burst. That event ushered in a financial crisis that was not only intense but also stunning. So stunning in fact, that in August of last year, just a month before the collapse of Lehman Brothers, the global economy was close to a crisis worthy of comparison with the Great Depression, yet neither the markets nor the Federal Reserve had much of an inkling of what was to come. The Standard and Poor's (S) 500 Index had come down to about 1,300 from its October 2007 high of 1,576. Positive growth had just been reported for the U.S. economy during the second quarter of 2008 at an annual rate of 2.8 percent (later revised down to 1.5 percent). Almost one percentage point of that growth came from U.S. consumption, and government spending also contributed. The wave of relief after the Bear Stearns scare in March 2008 had provided a nice boost to the economy and to markets. That boost was further enhanced by the substantial contribution to growth from net exports (2.9 percentage points) thanks to what was, then, continuing strength in the global economy, especially in China, which had reported blistering 10.1 percent year-over-year growth in the second quarter of 2008. These and other positive components more than offset a drag from inventories and residential investment. In short, the real economy had not shown much evidence of damage emanating from the chaos that was churning in the financial sector.
  • Topic: Economics, International Political Economy, International Trade and Finance, Markets, Monetary Policy, Financial Crisis
  • Political Geography: United States, China
  • Author: John H. Makin
  • Publication Date: 11-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The only thing scarier than the slide of the dollar, which has dropped by 15 percent since March, would be an attempt by the Federal Reserve to stop it. Such an attempt would show that we have learned nothing from the Bank of Japan's disastrous premature exit from a zero-interest policy in August 2000. Closer to home, it would resemble the Fed's premature move to mop up “excess” reserves by doubling reserve requirements in three steps between August 1936 and May 1937, which was followed by the third-worst recession of the twentieth century, from May 1937 to June 1938.
  • Topic: Economics, International Political Economy, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: United States, Japan
  • Author: John H. Makin
  • Publication Date: 10-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Wall Street is dancing again to the music of a sharp rise in stock prices. The question that remains is whether Main Street, currently languishing in a sad world of job losses, unavailable credit, and weakened balance sheets, will get to join the party. To put the question more precisely, will the “adverse feedback loop” that saw a financial collapse last fall that crushed the real economy work in reverse, so that a financial bounce boosts the real economy in coming quarters? The jury is still out on this important question.
  • Topic: Economics, Markets, Financial Crisis
  • Political Geography: United States
  • Author: Vijaya Ramachandran, Manju Kedia Shah, Alan Gelb
  • Publication Date: 03-2009
  • Content Type: Policy Brief
  • Institution: Center for Global Development
  • Abstract: Why has the private sector failed to thrive in much of sub-Saharan Africa? Drawing on a unique set of enterprise surveys, we identify inadequate infrastructure (especially unreliable electricity and poor quality roads) and burdensome regulations as the biggest obstacles to doing business. We find as well that the private sector in many countries is dominated by ethnic minorities, which inhibits competition and lowers demand for a better business environment. Solutions include investing in infrastructure, providing risk guarantees, and reforming regulations to lower the cost of doing business, as well as increasing access to education for would-be entrepreneurs.
  • Topic: Development, Economics, Emerging Markets, Globalization, International Trade and Finance
  • Political Geography: Africa
  • Author: Liliana Rojas-Suarez
  • Publication Date: 09-2009
  • Content Type: Policy Brief
  • Institution: Center for Global Development
  • Abstract: Before the global economic crisis began in 2008, all countries in Latin America, long known as the world's most economically and financially volatile region, had experienced five consecutive years of economic growth, a feat that had not been achieved since the 1970s. Yet despite this growth, Latin America's incomeper-capita gap relative to high-income countries and other emerging-market economies widened, and poverty remained stubbornly high. Latin America, in short, suffered from growing pains even when things were going reasonably well.
  • Topic: Economics, Emerging Markets
  • Political Geography: Brazil, Colombia, Latin America, Mexico, Costa Rica, Peru
  • Author: Paola Subacchi, Eric Helleiner
  • Publication Date: 06-2009
  • Content Type: Policy Brief
  • Institution: Centre for International Governance Innovation
  • Abstract: From many perspectives, the London Summit of the G20 leaders at the beginning of April 2009 was a success – and a hard act to follow. The discussion was framed around crisis resolution and the strengthening of the international financial architecture. Beyond any concrete achievement, the success of the London Summit is that it morphed into an ongoing process with a rolling agenda, rather than remaining a one-off event. Undoubtedly the Italian Presidency of the G8 has a hard task, being caught between the success of London and the decreasing relevance of the G8. But there is also scope for building a meaningful bridge between London and the G8 meeting in L'Aquila in July 2009, and continuing and strengthening the economic governance reform process. There is an urgent need to continue to push for progress on a number of key items that were not adequately addressed at the London Summit and where progress can be made in L'Aquila – fostering clarity for the G20 agenda for the next meeting in Pittsburgh in September 2009. With regard, in particular, to the reform of the International Monetary Fund, the Italian Presidency should use its G8 chair to initiate a dialogue on reform of the European representation, taking advantage of having all the key players gathered together in L'Aquila.
  • Topic: Economics, International Cooperation, International Trade and Finance, Treaties and Agreements, International Monetary Fund
  • Political Geography: Europe, London, Italy
  • Author: Nazery Khalid
  • Publication Date: 09-2009
  • Content Type: Policy Brief
  • Institution: Maritime Institute of Malaysia
  • Abstract: The Wall Street meltdown has had a massive domino effect on major industries worldwide. The ensuing financial crisis cuts deep and wide across the global economy. It has clipped the wings of growth of many business activities and industry.
  • Topic: Economics, International Trade and Finance, Maritime Commerce, Financial Crisis
  • Political Geography: Malaysia
  • Publication Date: 07-2009
  • Content Type: Policy Brief
  • Institution: Transparency International
  • Abstract: Cartels are illegal and costly. They inflate prices for consumers, exact an economic toll on countries and undermine the integrity of companies. Cartels can form in any sector, ranging from health care and transport, to construction and telecommunications. They leave no industry untouched or consumer unburdened. When companies engage in collusion by conspiring to fix prices, markets become inefficient and consumers bear unjustified price hikes that can reach up to 100 per cent.
  • Topic: Corruption, Economics, International Trade and Finance, Markets, Law