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  • Author: David G. Blanchflower, David N. F. Bell
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines the amount of slack in the UK labor market and finds the downward adjustments made by the Monetary Policy Committee (MPC) to both unemployment and underemployment invalid. Without evidence to support its assessment of the output gap, the MPC reduces the level of unemployment based on its claim that long-term unemployment does not affect wages. The authors produce evidence to the contrary and present arguments on why the MPC's halving of the level of underemployment in the United Kingdom is inappropriate. Bell and Blanchflower set out arguments on why they believe the level of slack is greater than the MPC calibrates. Consistent with that is the fact that real wages in the United Kingdom continue to fall.
  • Topic: Economics, Markets, Labor Issues
  • Political Geography: United Kingdom, Europe
  • Author: Arvind Subramanian, Kevin Stahler
  • Publication Date: 11-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Prima facie, competitiveness adjustments in the eurozone, based on unit labor cost developments, appear sensible and in line with what the economic analyst might have predicted and the economic doctor might have ordered. But a broader and arguably better—Balassa-Samuelson-Penn (BSP)—framework for analyzing these adjustments paints a very different picture. Taking advantage of the newly released PPP-based estimates of the International Comparison Program (2011), we identify a causal BSP relationship. We apply this framework to computing more appropriate measures of real competitiveness changes in Europe and other advanced economies in the aftermath of the recent global crises. There has been a deterioration, not improvement, in competitiveness in the periphery countries between 2007 and 2013. Second, the pattern of adjustment within the eurozone has been dramatically perverse, with Germany having improved competitiveness by 9 percent and with Greece's having deteriorated by 9 percent. Third, real competitiveness changes are strongly correlated with nominal exchange rate changes, which suggests the importance of having a flexible (and preferably independent) currency for effecting external adjustments. Fourth, internal devaluation—defined as real competitiveness improvements in excess of nominal exchange rate changes—is possible but seems limited in scope and magnitude. Our results are robust to adjusting the BSP framework to take account of the special circumstances of countries experiencing unemployment. Even if we ignore the BSP effect, the broad pattern of limited and lopsided adjustment in the eurozone remains.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Jeromin Zettelmeyer, Christoph Trebesch, Mitu Gulati
  • Publication Date: 08-2013
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief— over 50 percent of 2012 GDP—with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, created a large risk for European taxpayers, and set precedents—particularly in its very generous treatment of holdout creditors—that are likely to make future debt restructurings in Europe more difficult.
  • Topic: Debt, Economics, Monetary Policy, Financial Crisis
  • Political Geography: Europe, Greece
  • Author: David G. Blanchflower, David N. F. Bell
  • Publication Date: 08-2013
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: One of the factors that may inhibit reductions in unemployment as the economy recovers is the extent to which existing workers would like to work more hours and employers may prefer to let them work longer hours before making new hires. This phenomenon suggests that the unemployment rate does not capture the full extent of excess capacity in the labor market. But how should it be measured? In this paper we argue that the United States does not have the necessary statistical tools to calibrate this form of underemployment. We describe an index that captures the joint effects of unemployment and underemployment and provides a more complete picture of labor market excess capacity. We show how this index can be implemented using British data and describe its evolution over the Great Recession. Comparisons of our index with unemployment rates suggest that unemployment rates understate differences in labor market excess capacity by age group and overstate differences by gender. We also show that being unable to work the hours that one desires has a negative effect on well-being. Finally, we recommend that the Current Population Survey conducted by the US Bureau of Labor Statistics might be extended to enable the construction of an equivalent US index.
  • Topic: Economics, International Trade and Finance, Markets, Labor Issues
  • Political Geography: United States, Europe
  • Author: Arvind Subramanian, Martin Kessler
  • Publication Date: 07-2013
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper describes seven salient features of trade integration in the 21st century: Trade integration has been more rapid than ever (hyperglobalization); it is dematerialized, with the growing importance of services trade; it is democratic, because openness has been embraced widely; it is criss-crossing because similar goods and investment flows now go from South to North as well as the reverse; it has witnessed the emergence of a mega-trader (China), the first since Imperial Britain; it has involved the proliferation of regional and preferential trade agreements and is on the cusp of mega-regionalism as the world's largest traders pursue such agreements with each other; and it is impeded by the continued existence of high barriers to trade in services. Going forward, the trading system will have to tackle three fundamental challenges: In developed countries, the domestic support for globalization needs to be sustained in the face of economic weakness and the reduced ability to maintain social insurance mechanisms. Second, China has become the world's largest trader and a major beneficiary of the current rules of the game. It will be called upon to shoulder more of the responsibilities of maintaining an open system. The third challenge will be to prevent the rise of mega-regionalism from leading to discrimination and becoming a source of trade conflicts. We suggest a way forward—including new areas of cooperation such as taxes—to maintain the open multilateral trading system and ensure that it benefits all countries.
  • Topic: Economics, Emerging Markets, Globalization, International Trade and Finance
  • Political Geography: Europe, Asia, North America
  • Author: Edwin M. Truman
  • Publication Date: 10-2013
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The European and Asian financial crises are the two most recent major regional crises. This paper compares their origins and evolution. The origins of the two sets of crises were different in some respects, but broadly similar. The two sets of crises also shared similarities in their evolution, but here the differences were more significant. The European crisis countries received more external financial support, despite the fact that they involved more solvency issues while the Asian crises involved more liquidity issues. On balance, the reform programs in the European crises were less demanding and rigorous than in the Asian crises. Partly as a consequence, the negative impacts on the global economy have been larger. I draw three lessons from this analysis: First, history will repeat itself; there will be other external financial crises. Second, other countries have a stake in appropriate crisis management. Third, the IMF and other countries were mistaken in treating the European crises as individual country crises rather than as a crisis for the euro area as a whole that demanded policy conditionality on all members of the euro area.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Financial Crisis
  • Political Geography: Europe, Asia
  • Author: Nicolas Véron
  • Publication Date: 01-2012
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper aims to take stock of global efforts towards financial reform since the start of the financial crisis in 2007–08, and to provide a synthetic (if simplified) picture of their status as of January 2012. Underlying dynamics are described and analyzed both at the global level (particularly G-20, IMF, and FSB) and in individual jurisdictions, as well as the impact the crisis has had on these regions. The possible next steps of financial reform are then reviewed, including: the ongoing crisis management in Europe, the new emphasis on macroprudential approaches, the challenges posed by globally integrated financial firms, the implementation of harmonized global standards, and the links between financial systems and growth.
  • Topic: Economics, International Trade and Finance, Markets, Global Recession, Financial Crisis
  • Political Geography: Europe
  • Author: Anders Åslund
  • Publication Date: 04-2012
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The response of the ten new eastern members of the European Union to the global financial crisis has valuable lessons of crisis resolution for the euro area. These countries were severely hit by the crisis in the fall of 2008 and responded with extensive reforms. Crisis made the unthinkable possible. This paper outlines the main reform measures that the ten Central and East European (CEE) countries carried out. It then quantifies to what extent the CEE countries resolved the macroeconomic crisis and explores the effects of the reforms on future growth prospects. The fourth and major section discusses how the political economy of the crisis resolution actually worked. Finally, the author examines what lessons euro area countries can learn from the crisis resolution of the newest members of the European Union.
  • Topic: Debt, Economics, International Trade and Finance, Markets, Political Economy, Financial Crisis
  • Political Geography: Europe
  • Author: Morris Goldstein, Nicolas Véron
  • Publication Date: 01-2011
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by "too big to fail" financial institutions. They identify variations in historical experiences, financial system structures, and political institutions that help one understand the differences of approaches between the United States, EU member states, and the EU institutions in addressing this problem. The authors then turn to possible remedies and how they may be differentially implemented in America and Europe. They conclude on which policy developments are likely in the near future.
  • Topic: Economics, Financial Crisis
  • Political Geography: United States, America, Europe
  • Author: C. Randall Henning
  • Publication Date: 03-2011
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Recent crises and the expansion of international financial arrangements have dramatically elevated the importance of cooperation between regional institutions and the International Monetary Fund (IMF). While the case for coordination between regional and multilateral institutions is generally accepted, however, the need to organize it on an ex ante basis is not fully appreciated. The relatively successful cooperation among the European Commission, European Central Bank, and IMF on the European debt crisis is not likely to be easily replicated in joint programs for countries in other regions, moreover, and the costs of coordination failure could be very large. Recent innovations at the IMF, on the other hand, present opportunities for cooperation with regional facilities. Henning reviews (1) the case for organizing cooperation on an ex ante basis, (2) the policy and institutional matters that should be coordinated, (3) how East Asian arrangements in particular and the IMF might cooperate, and (4) an Interinstitutional Agenda of general principles, modalities, and institutional recommendations. The G-20, member states, and institutions themselves should address this agenda proactively.
  • Topic: Debt, Economics, Regional Cooperation, International Monetary Fund, Financial Crisis
  • Political Geography: Europe, East Asia
  • Author: Edwin M. Truman
  • Publication Date: 12-2011
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper addresses two central questions for Asia and the world: (1) What is the purpose of Asian regional policy coordination going forward? (2) Will Asian regional policy coordination substitute or complement global policy coordination? The paper examines the potential coverage and content of such policy coordination, what is meant by Asia in this context, and how Asia fits in with global policy coordination processes. Truman addresses three related aspects of Asian regional policy coordination: macroeconomic policies, reserve management, and crisis management. He concludes that while the countries in the Asian region have not completely exploited the scope for regional policy coordination, more ambitious efforts focused on close integration are not likely to bear fruit, in particular, if they are conceived and promoted under the banner of Asian exceptionalism. These conclusions are based on two main considerations: First, Asian economies differ, and will continue to differ, sufficiently in size and stage of development such that it is difficult to conceive of a successful voluntary blending of their interests. Second, the central lesson of the global financial crisis and its current European coda is that global economic and financial integration has advanced sufficiently that countries can run but they cannot hide individually or in sub-global groups of countries.
  • Topic: Economics, International Trade and Finance, Regional Cooperation
  • Political Geography: Europe, Asia
  • Author: Leszek Balcerowicz
  • Publication Date: 12-2010
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper distinguishes four alternative sovereign debt resolution mechanisms: pure market solutions, modified market solutions, crisis lending by the IMF and other institutions, and the proposed Sovereign Debt Restructuring Mechanism (SDRM). It is hard to find—at the general level of analysis—the unique advantages of SDRM. The assessment of the European Stabilization Mechanism will ultimately depend on its operation, especially whether it will be a tool of subsidizing countries in debt distress or an instrument of fiscal crisis lending. The present fiscal problems in the eurozone are due to the erosion of fiscal discipline and not to the lack of strong compensatory transfers within the eurozone. The right model to look at the conditions for the stability of the eurozone is not a single state but the gold standard–type system, a system of sovereign states with a (de facto) single currency. Based on this analogy and considering modern developments, three types of measures are needed to safeguard the stability of the eurozone: (1) measures that would reduce the procyclicality of the macroeconomic policies and of the economy; (2) reforms that would help the eurozone economies grow out of increased public debt; and (3) steps to increase the flexibility of the economy so that it can deal with the future shocks in a better way.
  • Topic: Debt, Economics, Markets, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Arvind Subramanian, Aaditya Mattoo
  • Publication Date: 10-2008
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: A fundamental shift is taking place in the world economy to which the multilateral trading system has failed to adapt. The Doha process focused on issues of limited significance while the burning issues of the day were not even on the negotiating agenda. The paper advances five propositions: (1) the traditional negotiating dynamic, driven by private-sector interests largely in the rich countries, is running out of steam; (2) the world economy is moving broadly from conditions of relative abundance to relative scarcity, and so economic security has become a paramount concern for consumers, workers, and ordinary citizens; (3) international economic integration can contribute to enhanced security; (4) addressing these new concerns-relating to food, energy, and economic security-requires a wider agenda of multilateral cooperation, involving not just the World Trade Organization but other multilateral institutions as well; and (5) despite shifts in economic power across countries, the commonality of interests and scope for give-and-take on these new issues make multilateral cooperation worth attempting.
  • Topic: Security, Economics, International Trade and Finance, Treaties and Agreements, World Trade Organization
  • Political Geography: United States, China, Europe
  • Author: Adam S. Posen, Daniel Popov Gould
  • Publication Date: 08-2006
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This working paper investigates the European Monetary Unification's (EMU) effect on wage restraint—the degree to which wage increases do or do not exceed productivity growth. We find in cross-sectional investigations that wage restraint either is unchanged or has increased following EMU in the vast majority of countries. This finding contradicts the predictions of a widely cited family of models of coordination of labor market bargaining. In particular, one would have expected Germany to display the greatest decline in wage restraint post-EMU under these models, but in our time-series analysis we find no indication of such a decline. The overall shift toward greater wage restraint is consistent with the models that emphasize the gains from monetary credibility. The time-series evidence on Italy, which shows a significant increase in wage restraint after eurozone entry, also supports this view. That said, the increase in wage restraint in the eurozone is matched by that associated with the increase in credibility seen in the United Kingdom and Sweden after their adoption of inflation targeting post-1992.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United Kingdom, Europe, Germany, Sweden
  • Author: Adam S. Posen
  • Publication Date: 01-2006
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: On January 13, Germany's new chancellor, Angela Merkel, will have her first official visit with US President George W. Bush. Washington, or at least the part of Washington that still pays attention to transatlantic issues, not just the Bush administration, will be glad to see her given that she is not her US-bashing predecessor Gerhard Schroeder. Though this change in atmosphere is welcome, no one should make too much of it. It is unlikely to make much difference on security issues, where Iran's own actions are forcing the United States and Germany to come together, where German public opinion will keep the governments apart on Iraq, and where neither country is prepared to make major changes to defense budgets and approaches. The Masri case will certainly limit Merkel's interest in appearing too chummy with Bush on security matters.
  • Topic: Development, Economics
  • Political Geography: United States, Iraq, Europe, Iran, Washington, Germany
  • Author: Gary Clyde Hufbauer, Yee Wong
  • Publication Date: 10-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Frustrated with lackluster momentum in the WTO Doha Round and the Asia Pacific Economic Cooperation (APEC) forum, and mindful of free trade agreement (FTA) networks centered on the United States and Europe, Asian countries have joined the FTA game. By 2005, Asian countries (excluding China) had ratified 14 bilateral and regional FTAs and had negotiated but not implemented another seven. Asian nations are also actively negotiating some 23 bilateral and regional FTAs, many with non-Asian partners, including Australia, Canada, Chile, the European Union, India, and Qatar. China has been particularly active since 2000. It has completed three bilateral FTAs—Thailand in 2003 and Hong Kong and Macao in 2004—and is initiating another 17 bilateral and regional FTAs. However, a regional Asian economic bloc led by China seems distant, even though China accounts for about 30 percent of regional GDP. As in Europe and the Western Hemisphere, many Asian countries are pursuing FTAs with countries outside the region. On present evidence, the FTA process embraced with some enthusiasm in Asia, Europe, and the Western Hemisphere more closely resembles fingers reaching idiosycratically around the globe rather than politico-economic blocs centered respectively on Beijing, Brussels, and Washington.
  • Topic: Economics, International Trade and Finance, Regional Cooperation
  • Political Geography: United States, China, Europe, Washington, Canada, India, Beijing, Asia, Australia, Qatar, Chile, Hong Kong, Brussels, Macao
  • Author: Dan Magder, Dan Magder
  • Publication Date: 08-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Exporting through international supply chains was a successful way for East Asian countries to develop their textile and apparel industries in the 1970s and 1980s, but it is a less clear route for countries like Egypt trying to compete today. The challenge is particularly acute given the strength of competitors like China, and even more so in the post-MFA era. Some analysts suggest that "lean retailing" increases the importance of geography in exporting in the world of rapidly changing apparel fashion, in a way that could benefit a country like Egypt with its proximity to European end markets. Using a supply chain model, this paper suggests that shortening lead times can indeed have an impact on profits, but that the effect is not tremendous, being in the range of a 0.3 percent to 0.9 percent increase in profits for every week of improvement in lead times. The study also finds that the business environment in Egypt lags key comparator countries in several areas that help the firms compete in global apparel chains, although recent reforms by the Egyptian government are working to address several of these aspects. It concludes by exploring to what extent geography, trade preferences, and local production factors may help Egypt's textile and apparel industry carve out a role for itself in global supply chains, and provide an engine to drive industrial upgrading throughout the country.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: Europe, East Asia, North Africa, Egypt
  • Author: Daniel Gould
  • Publication Date: 06-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The proposed European Constitution, which was just voted down in France and the Netherlands, is technically a treaty containing far-reaching amendments to the present set of treaties governing the European Union. Article 48 of the EU treaty text currently in force specifies that any such amendments first be unanimously approved by the governments of the member states within an Inter-Governmental Conference framework and then ratified by each country. The first, intergovernmental step of ratification was completed October 29, 2004.
  • Topic: Economics, Government
  • Political Geography: Europe, France, Netherlands
  • Author: Philipp M. Hildebrand
  • Publication Date: 05-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: I am pleased to be in Washington today and would like to thank Fred Bergsten and his colleagues at the Institute for International Economics for providing me with this opportunity to talk about the recently completed gold sales of the Swiss National Bank (SNB).
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: Europe, Washington
  • Author: Fred Bergsten
  • Publication Date: 04-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The dollar has been the dominant currency of the world economy for almost a century for a single overwhelming reason: It had no competition. No other economy came close to the size of the United States. Hence no currency could acquire the network externalities, economies of scale and scope, and public goods benefits necessary to rival the dollar at the global level. A similar situation for the United Kingdom explains sterling's dominance in the 19th century.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, United Kingdom, Europe