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

21. To what extent are tariffs offset by exchange rates?

Author:
Olivier Jeanne
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In theory, tariffs are partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. Based on a calibrated model, this paper finds that US tariffs imposed in 2018 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. Tariff-related news explains about one-third of the renminbi depreciation observed in 2018.
Topic:
Economics, Tariffs, Exchange Rate Policy, and Currency
Political Geography:
North America and United States of America

22. Central bank policy sets the lower bound on bond yields

Author:
Joseph E. Gagnon and Olivier Jeanne
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper shows that the scope for bond yields to fall below zero is strictly limited by market expectations about how far below zero central banks are willing to set their short-term policy rates. If a central bank communicates a credible commitment to keeping its policy rate above a given level under all circumstances, then bond yields must be higher than that level. This result holds true even in a model in which central banks are able to depress the term premium in bond yields below zero via large-scale purchases of long-term bonds, also known as quantitative easing (QE). QE becomes less effective as bond yields approach their lower bound.
Topic:
Economics, Finance, Central Bank, and Global Bond Market
Political Geography:
Global Focus

23. Global value chains and the removal of trade protection

Author:
Chad P. Bown, Aksel Erbahar, and Maurizio Zanardi
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines how trade protection is affected by changes in the value-added content of production arising through global value chains (GVCs). Exploiting a new set of World Trade Organization (WTO) rules adopted in 1995 that impose an exogenously timed requirement for countries to reevaluate their previously imposed trade protection, the authors adopt an instrumental variables strategy and identify the causal effect of GVC integration on the likelihood that a trade barrier is removed. Using a newly constructed dataset of protection removal decisions involving 10 countries, 41 trading partners, and 18 industries over 1995–2013, they find that bilateral industry-specific domestic value-added growth in foreign production significantly raises the probability of removing a duty. The results are not limited to imports from China but are only found for the protection decisions of high-income countries. Back-of-the-envelope calculations indicate that rapid GVC growth in the 2000s freed almost a third of the trade flows subject to the most common temporary restrictions (i.e., antidumping) applied by high-income countries in 2006.
Topic:
Economics, International Trade and Finance, Global Markets, Finance, and Trade
Political Geography:
Global Focus

24. A program for strengthening the Federal Reserve's ability to fight the next recession

Author:
David Reifschneider and David Wilcox
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
If the Federal Reserve does not decisively change the way it conducts monetary policy, it will probably not be capable of fighting recessions in the future as effectively as it fought them in the past. This reality helped motivate the Fed to undertake the policy framework review in which it is currently engaged. Researchers have suggested many steps the Fed could take to improve its recession-fighting ability; however, no consensus has emerged as to which of these steps would be both practical and maximally effective. This paper aims to fill that gap. It recommends that the Fed commit as soon as possible to a new approach for fighting recessions, involving two key elements. First, the Fed should commit that whenever it runs out of room to cut the federal funds rate further, it will leave the rate at its minimum level until the labor market recovers and inflation returns to 2 percent. Second, the Fed should commit that under the same circumstances, it will begin to purchase longer-term assets in volume and will continue such purchases until the labor market recovers. If the forces driving the next recession are not unusually severe, this framework might allow the Fed to be as effective at fighting that recession as it was in the past. If the next recession is more severe, however, the Fed will probably run out of ammunition even if it takes the two steps recommended here. Therefore, both monetary and fiscal policymakers should consider yet other steps they could take to enhance their ability to fight future recessions.
Topic:
Economics, Monetary Policy, and Federal Reserve
Political Geography:
North America, Global Focus, and United States of America

25. Why Trump shot the sheriffs: The end of WTO dispute settlement 1.0

Author:
Chad P. Bown and Soumaya Keynes
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
On December 10, 2019, the World Trade Organization’s (WTO) 25-year-old system of resolving disputes broke down. This paper explains why. It describes the dysfunctional system that preceded the WTO, when the United States dealt with politically troublesome imports by using voluntary export restraints and increasingly resorted to the “aggressively unilateral” Section 301 policy to resolve trade concerns. The WTO was a compromise between the rest of the world and the United States, whereby the latter accepted some constraints with the expectation that the new system of binding dispute settlement would serve its interests. But although the creation of the WTO resolved some concerns about American unilateralism in the short term, its system of handling disputes turned out to be politically unsustainable.
Topic:
Economics, World Trade Organization, Trade, and Donald Trump
Political Geography:
North America and United States of America

26. Global Dimensions of US Monetary Policy

Author:
Maurice Obstfeld
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that US monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the US economy from the disproportionate impact of US monetary policy on the outside world. In themselves, global factors need not undermine a central bank’s ability to control the price level over the long term—after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.
Topic:
Economics, Government, International Trade and Finance, and Monetary Policy
Political Geography:
North America and United States of America

27. WTO'ing a Resolution to the China Subsidy Problem

Author:
Chad P. Bown and Jennifer A. Hillman
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The United States, the European Union, and Japan have begun a trilateral process to confront the Chinese economic model, including its use of industrial subsidies and deployment of state-owned enterprises. This paper seeks to identify the main areas of tension and to assess the legal-economic challenges to constructing new rules to address the underlying conflict. It first provides a brief history of subsidy disciplines in the General Agreement on Tariffs and Trade and the World Trade Organization (WTO) predating any concerns introduced by China. It then describes contemporary economic problems with China’s approach to subsidies, their impact, and the apparent ineffectiveness of the WTO’s Agreement on Subsidies and Countervailing Measures to address them. Finally, it calls for increased efforts to measure and pinpoint the source of the problems—in a manner analogous to how the Organization for Economic Cooperation and Development took on agricultural subsidies in the 1980s—before providing a legal-economic assessment of proposals for reforms to notifications, evidence, remedies, enforcement, and the definition of a subsidy.
Topic:
Economics, World Trade Organization, Tariffs, and Trade
Political Geography:
Japan, Europe, Asia, North America, United States of America, and European Union

28. Should Monetary Policy Take Inequality and Climate Change into Account?

Author:
Patrick Honohan
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Should central banks take more account of ethical issues, notably the impact of monetary policy actions on the distribution of income and wealth and on efforts to combat climate change, in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes, central bank mandates justify paying more attention to such broad issues, especially if policy choices have a significant potential impact. Carefully managed steps in this direction could actually strengthen central bank independence while making some contribution to improving the effectiveness of public policy on these issues.
Topic:
Climate Change, Economics, Monetary Policy, Inequality, and Central Bank
Political Geography:
North America, Global Focus, and United States of America

29. Creating a Euro Area Safe Asset without Mutualizing Risk (Much)

Author:
Alvaro Leandro and Jeromin Zettelmeyer
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
Topic:
Economics, Sovereign Wealth Funds, Banks, and Risk
Political Geography:
Europe and Global Focus

30. Measuring the Rise of Economic Nationalism

Author:
Monica de Bolle and Jeromin Zettelmeyer
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Since the mid-2000s, the platforms of major political parties in both advanced and emerging-market economies have increasingly emphasized policies that stress national sovereignty, reject multilateralism, and seek to advance national interests through measures that come at the expense of foreign interests. This paper documents this shift by evaluating the policy platforms of the largest political parties (about 55 in total) in the Group of Twenty (G-20) countries with regard to trade policy, foreign direct investment (FDI), immigration, and multilateral organizations. Preference shifts with respect to industrial policy, competition policy, and macroeconomic populism are also examined. In advanced economies, the biggest shifts were toward restrictions on immigration and trade and toward macroeconomic populism. In emerging-market economies, the largest preference shifts were toward industrial policies favoring specific sectors, macroeconomic populism, and industrial concentration. Trade protectionism and skepticism toward multilateral organizations and agreements have increased in both advanced and emerging-market economies. As of 2018, economic policy preferences in emerging-market economies were more nationalist and less liberal than in advanced countries, but the gap has narrowed. Right-wing parties tend to be more nationalist than left-wing parties in the areas of immigration restrictions, FDI restrictions, and antimultilateralism, but there is no significant difference with respect to trade protectionism.
Topic:
Economics, International Trade and Finance, Nationalism, Politics, Populism, and Macroeconomics
Political Geography:
Global Focus