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

131. 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

132. 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

133. 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

134. 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

135. Foreign Direct Investment in China: Effects on Growth and Economic Performance

Author:
Edward M. Graham and Erika Wada
Publication Date:
04-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
By almost all accounts, foreign direct investment (FDI) in China has been one of the major success stories of the past 10 years. Starting from a base of less than $19 billion in 1990, the stock of FDI in China rose to over $300 billion at the end of 1999. Ranked by the stock of inward FDI, China thus has become the leader among all developing nations and second among the APEC nations (only the United States holds a larger stock of inward FDI). China's FDI consists largely of greenfield investment, while inward FDI in the United States by contrast has been generated more by takeover of existing enterprises than by new establishment, a point developed later in this paper. The majority of FDI in China has originated from elsewhere in developing Asia (i.e., not including Japan). Hong Kong, now a largely self-governing “special autonomous region” of China itself, has been the largest source of record. The dominance of Hong Kong, however, is somewhat illusory in that much FDI nominally from Hong Kong in reality is from elsewhere. Some of what is listed as Hong Kong-source FDI in China is, in fact, investment by domestic Chinese that is “round-tripped” through Hong Kong. Other FDI in China listed as Hong Kong in origin is in reality from various western nations and Taiwan that is placed into China via Hong Kong intermediaries. Alas, no published records exist to indicate exactly how much FDI in China that is nominally from Hong Kong is in fact attributable to other nations.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
United States, Japan, China, Israel, East Asia, Asia, and Hong Kong

136. On Currency Crises and Contagion

Author:
Morris Marcel Fratzscher
Publication Date:
12-2000
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Many economists have started to concede in recent years that contagion and self-fulfilling beliefs of investors have played a crucial role in the emerging market financial crises of the 1990s. Despite the progress on the theoretical side, however, empirical models of currency crises have been shown to perform poorly (Berg and Pattillo 1998) and many economists and policy institutions have been struggling to develop adequate models to predict future financial crises (Kaminsky et al. 1997, Goldstein et al. 2000).
Topic:
Economics, International Trade and Finance, and Political Economy

137. Strengthening the International Financial Architecture: Where Do We Stand?

Author:
Morris Goldstein
Publication Date:
10-2000
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
It's not easy to get senior economic officials worked up about the functioning of the international monetary system. Usually, they are preoccupied with the more immediate issues surrounding the national and global economic outlook. But the Mexican peso crisis of 1994-95 and, even more so, the Asian financial crisis of 1997-98 made crisis management important for the economic outlook and pushed many of the otherwise arcane issues in the so-called “international financial architecture” (hereafter, IFA) to the front burner of economic policy.
Topic:
Economics, International Organization, International Trade and Finance, and Political Economy
Political Geography:
Asia and Mexico

138. Transatlantic Issues in Electronic Commerce

Author:
Catherine L. Mann
Publication Date:
10-2000
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The global and dynamic e-commerce marketplace will increasingly impact the nature of national and international economic and government relations. This paper highlights three areas where the United States and European Union (EU) governments differ in their approaches as to how best to serve their domestic constituencies: treatment of trade flows, approach to tax regimes, manner of protecting personal data. Because the Internet marketplace is global but policy jurisdictions remain local, policy conflicts can develop. Policymakers on both sides need to harness technology and promote incentives for the private sector to help solve problems caused by the jurisdictional overlap. In addition to cross-border jurisdictional overlap, problems within a country can develop from issue convergence and policy overlap. That is, because the e-commerce marketplace is so integrated, the policy toward handling one issue, even within the national context, has implications for the policy set that is available to policymakers on other issues. Therefore, policies within a country must be more carefully meshed with each other with an eye toward consistency in the face of the forces of electronic commerce..
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
United States and Europe

139. Inflation, Monetary Transparency, and G3 Exchange Rate Volatility

Author:
Adam S. Posen and Kenneth N. Kuttner
Publication Date:
07-2000
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Short-term volatility in G3 bilateral exchange rates has been a fact of life since the beginning of the post-Bretton Woods float. It has been established, surprisingly, that this volatility is not only disproportionately large relative to the variation in relative macroeconomic fundamentals of Germany, Japan, and the United States, but is in fact largely unrelated to them. The apparent disconnect between fundamentals and dollar-yen and dollar-euro exchange rate fluctuations has led to perennial complaints about persistent exchange rate “misalignments,” and their real effects on the G3 (and other) economies, giving rise in turn to recurring proposals for government policies to limit this volatility. The idea that volatility reflects nothing more than the (perhaps rational, certainly profit-seeking) behavior of foreign exchange traders seems to give justification for a policy response. Yet, the disjunction between macroeconomic expectations and the volatility seems to indicate as well that some deviation from domestic monetary policy goals would be necessary to intervene against exchange rate swings.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
United States, Japan, and Germany

140. The New Asian Challenge

Author:
C. Fred Bergsten
Publication Date:
03-2000
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The initial postwar challenge from East Asia was economic. Japan crashed back into global markets in the 1960s, became the largest surplus and creditor country in the 1980s, and was viewed by many as the world's dominant economy by 1990. The newly industrialized countries (Korea, Taiwan, Hong Kong, Singapore) followed suit on a smaller but still substantial scale shortly thereafter. China only re-entered world commerce in the 1980s but has now become the second largest economy (in purchasing power terms), the second largest recipient of foreign direct investment inflows, and the second largest holder of monetary reserves. Indonesia and most of Southeast Asia grew at 7 percent for two or more decades. The oil crises of the 1970s and the financial crises of the late 1990s injected temporary setbacks but East Asia has clearly become a third major pole of the world economy, along with North America and Western Europe.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Japan, China, Europe, Israel, Taiwan, East Asia, Asia, North America, Korea, Singapore, and Hong Kong