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Begin New Search Topic Economics Content Type Working Paper Publishing Institution Peterson Institute for International Economics

201. Empirical Investigations of Inflation Targeting

Author:
Yifan Hu
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
A growing number of countries have anchored their monetary policy to an explicit numerical rate or range of inflation since such an inflation targeting framework was first adopted by New Zealand in 1989. This paper empirically investigates issues associated with inflation targeting using a dataset of 66 countries for the 1980–2000 period.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance
Political Geography:
New Zealand

202. Revitalizing the Economies of Japan and the United States

Author:
C. Fred Bergsten
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The United States and Japan are the two largest national economies in the world. Since the early 1990s, they have been moving in opposite directions. The United States enjoyed an expansion of record duration from the end of the Gulf War in 1991 until early 2001, growing much faster than any other G-7 country and much faster than it had at any time since the Second World War. Japan's economy, by contrast, has been virtually stagnant since its financial bubble burst in the early 1990s and has clearly experienced its worst performance since its recovery from the ravages of the Pacific War.
Topic:
Economics and International Trade and Finance
Political Geography:
United States, Japan, Israel, and East Asia

203. NAFTA Dispute Settlement Systems

Author:
Gary Hufbauer and Jeffrey J. Schott
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Drawing on the 1989 Canada-US Free Trade Agreement (CUSFTA), the North American Free Trade Agreement (NAFTA) extended dispute settlement provisions to cover more ground. In fact, within NAFTA there are six dispute settlement systems. NAFTA Chapter 11 is designed to resolve investor-state disputes over property rights; Chapter 14 creates special provisions for handling disputes in the financial sector via the Chapter 20 dispute settlement process (DSP); Chapter 19 establishes a review mechanism to determine whether final antidumping (AD) and countervailing duty (CVD) decisions made in domestic tribunals are consistent with national laws; and Chapter 20 provides government-to-government consultation, at the ministerial level, to resolve high-level disputes. In addition, the NAFTA partners created interstate dispute mechanisms regarding domestic environmental and labor laws under the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAAL C), respectively. This chapter examines the first four dispute settlement systems; the NAAEC and NAALC systems are evaluated elsewhere in this book.
Topic:
Economics and International Trade and Finance
Political Geography:
United States, Latin America, and North America

204. Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of US Manufacturing Plants

Author:
J. Bradford Jensen, Andrew B. Bernard, and Peter K. Schott
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines the role of international trade in the reallocation of U.S. manufacturing activity within and across industries from 1977 to 1997. It introduces a new measure of industry exposure to international trade, motivated by the Heckscher-Ohlin model, which focuses on where imports originate rather than their overall level. Results demonstrate that plant survival as well as output and employment growth are negatively associated with the share of industry imports sourced from the world's lowest-wage countries. Within industries, activity is reallocated towards capital-intensive plants. Plants are also more likely to alter their product mix (i.e. switch industries) in response to trade with low-wage countries. Plants altering their product mix switch to industries that are more capital-and skill-intensive.
Topic:
Economics, Government, and International Trade and Finance
Political Geography:
United States

205. Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics

Author:
J. Bradford Jensen, Andrew B. Bernard, and Peter K. Schott
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines the response of industries and firms to changes in trade costs. Several new firm-level models of international trade with heterogeneous firms predict that industry productivity will rise as trade costs fall due to the reallocation of activity across plants within an industry. Using disaggregated U.S. import data, we create a new measure of trade costs over time and industries. As the models predict, productivity growth is faster in industries with falling trade costs. We also find evidence supporting the major hypotheses of the heterogenous- firm models. Plants in industries with falling trade costs are more likely to die or become exporters. Existing exporters increase their shipments abroad. The results do not apply equally across all sectors but are strongest for industries most likely to be producing horizontally-differentiated tradeable goods.
Topic:
Economics, Government, and International Trade and Finance
Political Geography:
United States

206. Improving The Sovereign Debt Restructuring Process

Author:
Brad Setser and Nouriel Roubini
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The recent debate on reforming the international financial system has focused on the need to improve the sovereign debt restructuring process, and in particular on steps that could limit the risk that litigation could disrupt or delay a sovereign debt restructuring. This debate increasingly has focused on the debt restructuring process in those cases where debt reduction is needed to produce a sustainable debt profile. Less attention has been given to those cases where a sovereign lacks the reserves needed to cover its near-term obligations and, absent international support, has a clear need for debt rescheduling to push out near-term maturities.
Topic:
Economics, Government, and International Trade and Finance

207. Economic Issues Raised by Treatment of Takings Under NAFTA Chapter 11

Author:
Edward M. Graham
Publication Date:
11-2002
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This working paper examines, from an economic perspective, the treatment of takings (property rights) under NAFTA Chapter 11. To be more precise, the paper examines the treatment of takings as environmental groups fear might be established as the result of investor dispute settlement under this chapter; as of the date of this writing, most of the cases that have the potential to be precedent-setting have not been finally decided, albeit one—the Metalclad case—has been decided in a way that is unsettling to environmentalists. The author attempts to determine whether requiring public compensation of private investors for diminishment of value resulting from government regulatory action has the potential of achieving anything close to an “optimal” outcome from a societal cost-benefit point of view (defined below). This determination makes use of tools of economic analysis and, in particular, Coase's theorem regarding achieving optimal outcomes where negative externalities are present. The overall conclusion is that, although Coase's theorem can be invoked to argue that such an outcome can be achieved either via a “polluter pays” approach or a “public pays” (or “public must compensate”) approach, as a matter of practical application, the first approach is preferable to the second for a number of reasons, including government “fiscal illusion” and “moral hazard.”
Topic:
Economics and International Organization
Political Geography:
United States, Latin America, and North America

208. Assessing Globalization's Critics: "Talkers Are No Good Doers???"

Author:
Kimberly Ann Elliott, Debayani Kar, and J. David Richardson
Publication Date:
09-2002
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper is about the critics of the “doers” of globalization. It describes who they are, where they came from, what they want, how economists, policymakers, and others might understand them better, and where globalization might head from here. Many critics are themselves strongly internationalist and want to see globalization proceed, but under different rules. Some, particularly the protesters in the streets, focus mainly on what is wrong with the world. But some of them put forward broad alternative visions and others offer detailed recommendations for alleviating the problems they see arising from status quo globalization. Most of them have roots in long-standing transnational advocacy efforts to protect human rights and the environment and reduce poverty around the world. What brings them together today is their shared concern that the process by which globalization's rules are being written and implemented is undermining democracy and failing to spread the benefits broadly. This paper sketches the key issues and concerns that motivate the critics in a way that is broadly representative and intelligible to economists. It finds more resonance for the critics' agenda in economics than they commonly recognize. And it attempts to capture the concerns of Southern as well as Northern critics and to analyze the issues that divide as well as bring them together. Finally, it evaluates those issues and alternative proposals on which even globalization enthusiasts and the critics might come together cooperatively.
Topic:
Economics, Globalization, and International Trade and Finance

209. Toward A Sustainable FTAA: Does Latin America Meet The Necessary Financial Preconditions?

Author:
Liliana Rojas-Suarez
Publication Date:
07-2002
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper focuses on identifying preconditions that will ensure the sustainability of a Free Trade Area of the Americas (FTAA). It argues that the macro, micro, and political conditions advanced in the literature to measure a country's ability to compete internationally, while necessary, are not sufficient to ensure the success and permanence of a free trade agreement. Instead, two additional financial conditions are needed. The first is that each partner in the free trade area needs to have sustainable public debts as determined by the achievement of credible and sustainable structural fiscal balances. The second is that exchange rate regimes across trading partners should be compatible in the sense that adverse shocks in one country do not generate a policy dilemma in other partners between abandoning their exchange rate system or the free trade area.
Topic:
Economics and International Trade and Finance
Political Geography:
South America, Latin America, Central America, and Caribbean

210. Home Bias, Transactions Costs, And Prospects For The Euro: A More Detailed Analysis

Author:
Catherine L. Mann and Ellen E. Meade
Publication Date:
07-2002
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper brings together the literature on determination of home bias in equity holdings and the portfolio balance model of exchange rates to consider whether the dollar might be affected by a change in transactions costs that alters international portfolio allocations. Our empirical findings lend support to the view that transactions costs have a significant influence on US portfolio holdings, even after accounting for float market share. In addition, new survey evidence on the equity holdings of European firms indicates home bias for European investors, and points to a reduction in the magnitude of this home bias since 1997.
Topic:
Economics and International Trade and Finance
Political Geography:
United States and Europe

211. Six Practical Views of Central Bank Transparency

Author:
Adam S. Posen
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In the span of fifteen years, central bank transparency has gone from being highly controversial to motherhood and apple pie (one can insert analogous certitudes by country here). It is now an accepted broad goal to which all central banks pay at least lip service. Yet, like many other broad concepts in economic policy, such as “fiscal discipline” or “price stability,” what central bank transparency actually means remains rather open to debate. With the widespread adoption of inflation targeting, seen usually as an expression of increased central bank transparency, it is worthwhile to try to apply some clarity and rigor to this central banking concept du jour.
Topic:
Economics, Government, and International Trade and Finance

212. Passive Savers and Fiscal Policy Effectiveness in Japan

Author:
Adam S. Posen and Kenneth N. Kuttner
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The efficacy of fiscal policy in Japan in the last decade has been a subject of considerable dispute, and the coincidence of mounting deficits and continued stagnation has led some to conclude that fiscal policy was ineffective. This paper finds ample support for the opposite conclusion: exogenous fiscal policy shocks (as derived from a structural vector-autoregression model) had pronounced real effects in Japan. Expansionary fiscal policy was expansionary, and contractionary policy contractionary, consistent with the implications of conventional macroeconomic theory. A historical decomposition shows that Japan's burgeoning public debt stems almost entirely from the recession-caused slowdown in revenue growth, and that fiscal policy was at times procyclical rather than consistently expansionary. Direct examination of the long-run relationship between private saving, taxes, and spending confirms that any Ricardian effects of future public liabilities on saving were insufficient to offset the direct first-order effects of taxes and public expenditures. The passivity of Japanese savers therefore seems to have contributed to the efficacy of fiscal policy; otherwise, some combination of increased saving, capital outflow, and higher interest rates would have diminished its impact.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Japan, Israel, and East Asia

213. Moral Hazard and the U.S. Stock Market: Analyzing the “Greenspan Put”?

Author:
Marcus Miller, Paul Weller, and Lei Zhang
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
When the risk premium in the US stock market fell far below its historic level, Shiller (2000) attributed this to a bubble driven by psychological factors. As an alternative explanation, we point out that the observed risk premium may be reduced by one-sided intervention policy on the part of the Federal Reserve, which leads investors into the erroneous belief that they are insured against downside risk. By allowing for partial credibility and state dependent risk aversion, we show that this 'insurance'—referred to as the Greenspan put—is consistent with the observation that implied volatility rises as the market falls. Our bubble, like Shiller's, involves market psychology, but what we describe is not so much 'irrational exuberance' as exaggerated faith in the stabilizing power of Mr. Greenspan.
Topic:
Economics, Government, International Trade and Finance, and Political Economy
Political Geography:
United States

214. Can International Capital Standards Strengthen Banks in Emerging Markets?

Author:
Liliana Rojas-Suarez
Publication Date:
11-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Who should determine banks' capital standards: authorities or markets? What is the right definition of core capital: equity only or equity plus subordinated debt? Can the assessment of banks' individual credit risks by external rating agencies be of equal or better quality than the assessments derived from banks' own internal rating systems? These are some of the key financial regulatory issues currently being discussed by analysts in industrial countries, especially in the context of the proposed modification to the Basel Capital Adequacy Accord: Basel II is expected to replace the original 1988 Accord.
Topic:
Economics, International Trade and Finance, and Political Economy

215. Macroeconomic Implications of the New Economy

Author:
Martin Neil Baily
Publication Date:
09-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Together with many policymakers and economists, I see in the 1990s expansion signs that new technologies that had been emerging for some time were finally paying off in stronger economic performance. I will use the expression 'new economy' to describe this period, although I recognize the pitfalls in this name. New economy is probably too broad a term and implies both more change and more permanent change than actually took place. But 'information economy' seems too narrow a term to describe the set of interrelated forces bringing about change in the economy, that include increased globalization, a more intense pressure of competition, the rapid development, adoption and use of information and communications technology (IT) and a favorable economic policy environment.
Topic:
Economics, Government, International Trade and Finance, and Political Economy

216. Finance and Changing US-Japan Relations: Convergence Without Leverage—Until Now

Author:
Adam S. Posen
Publication Date:
08-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In the postwar era, US-Japan economic relations have been characterized by substantial tensions, yet this has not damaged the underlying security relationship or critically harmed the multilateral economic framework. In fact, these two economies have become more integrated over time even as these tensions played out. These tensions, however, have required an enormous expenditure of political capital and officials' time on both sides of the Pacific and have led to foregone opportunities for institution building and policy coordination. They have deepened since Japan “caught up” with the United States around 1980, and Japanese and US firms began increasingly to compete for profits and market share in the same sectors. Moreover, as both the US and Japanese economies continue to mature – both in terms of the age of their populations and their industrial mix – they will likely face even greater tensions between them over allocating the management and costs of industrial adjustment.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
United States, Japan, Israel, and East Asia

217. Beyond Bipolar: A Three-Dimensional Assessment of Monetary Frameworks

Author:
Adam S. Posen and Kenneth N. Kuttner
Publication Date:
07-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
A great deal of attention has been focused recently on the impact of exchange rate regimes, just as previous empirical research examined central bank autonomy and announced targets for domestic monetary policy. To date, however, these three elements of monetary frameworks have been assessed in isolation from one another, and all have been viewed in terms of a unidimensional spectrum of fixity versus flexibility. Using a newly-constructed dataset, this paper jointly analyzes and compares all three elements' effects on inflation and exchange rate behavior. The results show that each of the three elements has independent and distinct effects on nominal outcomes. Key findings include: (1) although hard pegs do tend to reduce inflation and attenuate exchange rate fluctuations within some range, they are clearly characterized by large devaluations; (2) central bank autonomy is associated with a more stable exchange rate and lower inflation; and (3) explicit inflation targeting reduces both inflation and its persistence, consistent with the view that inflation targeting increases flexibility through transparency. These results raise the possibility that a combination of central bank autonomy, inflation targeting, and a free float might offer the same benefits as any intermediate exchange rate regime on its own, without the proclivity to occasional large depreciations.
Topic:
Economics, International Trade and Finance, and Political Economy

218. Rating Banks in Emerging Markets: What Credit Rating Agencies Should Learn From Financial Indicators

Author:
Liliana Rojas-Suarez
Publication Date:
05-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The rating agencies' and bank supervisors' records of prompt identification of banking problems in emerging markets has not been satisfactory. This paper suggests that such deficiencies could be explained by the use of financial indicators that, while appropriate for industrial countries, do not work in emerging markets. Among the conclusions, this paper shows that the most commonly used indicator of banking problems in industrial countries, the capital-to-asset ratio, has performed poorly as an indicator of banking problems in Latin America and East Asia. This is because of (a) severe deficiencies in the accounting and regulatory framework and (b) lack of liquid markets for bank shares, subordinated debt and other bank liabilities and assets needed to validate the “real” worth of a bank as opposed to its accounting value.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
East Asia and Latin America

219. Unchanging Innovation and Changing Economic Performance in Japan

Author:
Adam S. Posen
Publication Date:
05-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Toyota Commemorative Museum of Industry and Technology gives its visitors much to ponder. Established at the site in Nagoya where in 1911 Sakichi Toyoda founded his automatic loom factory (the basis of the family fortune, which later funded his son Kiichiro's development of automobile production), the museum was opened on June 11, 1994, the 100th anniversary of Toyoda's birth. It is a popular stop on field trips for Japanese schoolchildren, who are required to study in the 3rd grade the automobile industry. The messages, which Toyota wishes to instill in its young visitors, are the importance of “making things” and of “creativity and research.” And confronting all museum visitors upon entry, having central place in the vast and largely empty first room of the exhibits, is Sakichi Toyoda's one-of-a-kind vertical circular loom.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Japan, Israel, and East Asia

220. IMF Structural Conditionality: How Much Is Too Much?

Author:
Morris Goldstein
Publication Date:
04-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
“...detailed conditionality (often including dozens of conditions) has burdened IMF programs in recent years and made such programs unwieldy, highly conflictive, time consuming to negotiate, and often ineffectual.” “The IMF should cease lending to countries for long-term development assistance (as in sub-Saharan Africa) and for long-term structural transformation (as in post-Communist transition economies)...The current practice of extending long-term loans in exchange for member countries' agreeing to conditions set by the IMF should end.”
Topic:
Economics, International Organization, and International Trade and Finance
Political Geography:
Africa