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102. What Bond Markets Can Learn from Argentina
- Author:
- Anna Gelpern
- Publication Date:
- 04-2005
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Argentina has completed the largest and most complex sovereign bond restructuring in history. Before the debt exchange, it owed about $82 billion in principal and $20 billion in past due interest. Hundreds of thousands of creditors held 150 kinds of defaulted instruments issued in six currencies under the laws of eight jurisdictions. Creditors owed just over 76% of the total, or $62 billion, got $35 billion in new performing bonds. Other performing debt includes $40 billion in domestic and about $30 billion in multi-lateral obligations. Argentina left behind almost $25 billion in defaulted principal and interest.
- Topic:
- Development, Economics, and International Trade and Finance
- Political Geography:
- Argentina and South America
103. China's Role in the Revived Bretton Woods System: A Case of Mistaken Identity
- Author:
- Nicholas R. Lardy and Morris Goldstein
- Publication Date:
- 03-2005
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- According to a popular argument put forward by three Deutsche Bank economists (Dooley, Folkerts-Landau, and Garber, here after DFG), one needn't worry about the sustainability of either the large US current account deficit or the undervalued exchange rates of a group of Asian economies (Dooley, Folkerts-Landau, and Garber 2003, 2004a, 2004b, 2004c; Folkerts-Landau 2004). In their view, the United States and the Asian economies have entered into an implicit contract—the so-called revived Bretton Woods system (hereafter BW2)—that can comfortably carry on for another decade or two, with significant net benefits to both parties.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- United States, China, and Asia
104. US Trade Policy in 2005
- Publication Date:
- 02-2005
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Some time ago, Fred Bergsten and I were talking about the fact that, if trade liberalization is to move forward and retrogression is to be prevented, the focus of the policy community and the public on the benefits of trade-in the full sense, including imports-and on the issues around trade needs to increase. The adverse effects trade has on some people are very keenly felt and often lead to vociferous opposition, while the benefits of trade for a far greater number of people are diffuse and usually little if at all understood-for example, by consumers-and seldom generate political activity on behalf of trade.
- Topic:
- Economics, Human Welfare, and International Trade and Finance
- Political Geography:
- United States
105. This is Bangalore Calling: Hang Up or Speed Dial? What Technology-Enable International Trade in Services Means for the US Economy
- Author:
- Catherine L. Mann
- Publication Date:
- 01-2005
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Globalization, always a contentious issue, has become even more so with media reports of U.S. service-sector jobs being outsourced to emerging-market economies, such as call center operations to Ireland or programming jobs to India. Traditionally, these jobs have been considered “nontradable” and therefore safe from the competitive forces of international trade and investment. But increasingly, technological advances are making it easier to buy services from other companies, even those in developing countries, where savings in the cost of labor or the opportunity to use the 24- hour clock to speed product develop- ment can be irresistible.
- Topic:
- Economics, Globalization, International Trade and Finance, and Science and Technology
- Political Geography:
- United States and Ireland
106. North American Agriculture under NAFTA
- Author:
- Gary Clyde Hufbauer, Jeffrey J. Schott, and Yee Wong
- Publication Date:
- 12-2004
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The NAFTA agreement on agricultural trade consists of three bilateral agreements—between the United States and Mexico, the United States and Cana da, and Canada and Mexico. The US-Canada agreement largely carried into NAFTA the tariff and nontariff barrier rules that had been adopted in the Canada-US Free Trade Agreement (CUSFTA). Under CUSFTA, most agriculture tariffs between the United States and Canada were to be phased out by January 1998, and this schedule was adopted by NAFTA for US-Canada agricultural trade. However, Canada was allowed to maintain permanent tariff-rate-quota (TRQ) restrictions on imports of dairy, poultry, and eggs; and the United States was allowed to maintain TRQs on imports of sugar, dairy products, and peanuts from Canada (see table 1). Although a tariff snapback provision remains in effect until 2008, it has rarely been used by Canada. Agricultural trade between Mexico and Canada was limited by virtually the same restrictions. As might be expected, some agriculture trade associations favored NAFTA and others opposed. Box 1 summarizes the lineup of important trade associations.
- Topic:
- Agriculture, Economics, and International Trade and Finance
- Political Geography:
- United States, Canada, North America, and Mexico
107. NAFTA Dispute Settlement Systems
- Author:
- Gary Clyde Hufbauer, Jeffrey J. Schott, and Yee Wong
- Publication Date:
- 11-2004
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Building on the 1989 Canada-US Free Trade Agreement (CUSFTA), the NAFTA contains dispute settlement provisions in six separate areas. 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 and countervailing duty 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 (NAALC), respectively. This chapter examines the first four dispute settlement systems; the NAAEC and NAALC systems are evaluated in the environment and labor chapters of this book.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States and Canada
108. Toward a Free Trade Area of the Asia Pacific
- Author:
- C. Fred Bergsten
- Publication Date:
- 11-2004
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The APEC Business Advisory Council (ABAC) has proposed that the APEC Leaders at Santiago on November 20-21 “agree to further examine the feasibility and potential scope and features of a Free Trade Area of the Asia Pacific (FTAAP).” President Ricardo Lagos of Chile, the host of the APEC summit, has endorsed the concept. I believe that APEC should actively pursue the FTAAP idea. It offers the best prospects of any available strategy for catalyzing a successful outcome of the Doha Round and thus revitalizing the World Trade Organization (WTO). By forging a new transpacific initiative, it can counter the very real risk of disintegration of the Asia-Pacific region that is evident in the progress of Asia-only cooperation on one side of the ocean and a Free Trade Area of the Americas on the other side. It is the best possible device to reenergize APEC's progress toward its own signature trade liberalization goals and thus those of APEC as an institution. It offers a unique win-win-win opportunity that should be seized, beginning at Santiago and then at Pusan a year from now.
- Topic:
- Economics, International Trade and Finance, Politics, and World Trade Organization
- Political Geography:
- America and Asia
109. WTO, E-commerce, and Information Technologies: From the Uruguay Round through the Doha Development Agenda
- Author:
- Sacha Wunsch-Vincent
- Publication Date:
- 11-2004
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Although much of the early Internet hype has faded, e-commerce continues to grow and spread around the world. In recent years, the potential and importance of e-commerce to the economies and industries of the developing world has become particularly evident. Yet as e-commerce develops into a global phenomenon, the need for rules and principles facilitating e-commerce has become increasingly evident, too.
- Topic:
- Development, Economics, International Trade and Finance, and Science and Technology
- Political Geography:
- Uruguay
110. Adjusting China's Exchange Rate Policies
- Author:
- Morris Goldstein
- Publication Date:
- 06-2004
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- During the past year, there has been considerable debate about, and much international criticism of, China's exchange rate and its currency regime. Yes, criticism of China in the United States would likely be more muted if the ongoing recovery were not so “jobless,” if employment in the US manufacturing sector had not (mainly for other reasons) declined so much in the three-year run-up to this presidential elect ion year, if so much attention were not focused on the very large bilateral US trade deficit with China instead of China's economically—more meaningful overall balance-of-payments position, and if the United States had not done such a poor job of improving its saving-investment imbalance—particularly in the public sector.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- United States, China, and Asia
111. Preempting Protectionism in Services: The GATS and Outsourcing
- Author:
- Aaditya Mattoo and Sacha Wunsch
- Publication Date:
- 01-2004
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Cross-border trade in services is growing rapidly, with both developed and developing countries among the most dynamic exporters. Despite the substantial global benefits from such trade, the adjustment pressures created in importing countries could provoke a protectionist backlash - some signs of which are already visible in procurement and regulatory restrictions. The current negotiations under the Doha Development Agenda offer an opportunity to lock in current openness and preempt protectionism. This note describes how a bold initiative under the General Agreement on Trade in Services (GATS) can help secure openness.
- Topic:
- Emerging Markets, Globalization, International Trade and Finance, and Treaties and Agreements
112. The US Current Account, New Economy Services, and Implications for Sustainability
- Author:
- Catherine L. Mann
- Publication Date:
- 01-2004
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This essay considers the implications for sustainability of the US current account of widespread uptake of new economy services around the world. The main contribution of this paper is to estimate new income elasticities for US exports and imports of services that have become increasingly internationally tradable on account of the networked information technologies characteristic of the new economy. These elasticity estimates are then incorporated into a simple model of the US current account. Assumptions on the increase in global growth coming from widespread uptake of new economy services around the world are taken from other sources. The new estimates of income elasticities and the assumptions on global growth yield a trajectory for the US current account deficit that is compared to a base case without increased integration of new economy services in international trade and around the world. The paper concludes that although new economy services reduce the asymmetry in estimated income elasticities and contribute to raising global growth, reasonable estimates of these two structural improvements are not sufficient to stabilize the US current account deficit, in part because the share of new economy services in trade is still small.
- Topic:
- Economics, International Trade and Finance, and Political Economy
- Political Geography:
- United States
113. Labor Standards, Development, and CAFTA
- Author:
- Kimberly Ann Elliott
- Publication Date:
- 03-2004
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The Miami Summit launching the Free Trade Area of the Americas (FTAA) process recognized that free markets and free societies work best when they work together. The core labor standards — freedom of association and the right to organize and bargain collectively, freedom from forced labor, the abolition of child labor, and freedom from discrimination — are part of the summit - FTAA process because they strengthen both markets and democracy. These core standards are broadly recognized as fundamental rights to which all workers are entitled, regardless of the level of development of the country or the sector where they work. And, in an environment that promotes democracy and market - oriented economies, as the FTAA is intended to do, there is no trade - off between these principles and development; indeed, they become mutually reinforcing.
- Topic:
- Human Welfare, International Organization, International Political Economy, and International Trade and Finance
114. The Difficulties of Discerning What's Too Tight: Taylor Rules and Japanese Monetary Policy
- Author:
- Adam S. Posen and Kenneth N. Kuttner
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Observers have relied increasingly on simple reaction functions, such as the Taylor rule, to assess the conduct of monetary policy. Applying this approach to deflationary or near-zero inflation environments is problematic, however, and this paper examines two shortcomings of particular relevance to the Japanese case of the last decade. One is the unusually high degree of uncertainty associated with potential output in an environment of prolonged stagnation and deflation. Consequently, reaction function-based assessments of Japanese monetary policy are so sensitive to the chosen gauge of potential output as to be unreliable. The second shortcoming is the neglect of policy expectations, which become critically important as nominal interest rates approach zero. Using long-term bond yields, we identify five episodes since 1996 characterized by abrupt declines in Japanese inflation expectations. Policies undertaken by the Bank of Japan during this period did little to stabilize expectations, and the August 2000 interest rate increase appears to have intensified deflationary concerns.
- Topic:
- Climate Change, Economics, and International Trade and Finance
- Political Geography:
- Japan, Israel, East Asia, and Asia
115. US-Brazil Trade Relations in a New Era
- Author:
- Jeffrey J. Schott
- Publication Date:
- 08-2003
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The United States and Brazil are the largest economies in North and South America, respectively. A generation ago, both were relatively closed economies in terms of the proportion of their trade to gross domestic product (GDP), but for sharply different reasons. The US market was highly competitive except for some light manufactures (e.g., textiles, clothing, and footwear) and a few agricultural sectors with high border barriers. By contrast, Brazilian industry was largely uncompetitive and highly subsidized; important commodities like coffee provided the bulk of exports while a large share of the value of most industrial exports was attributable to export subsidies.
- Topic:
- International Trade and Finance
- Political Geography:
- United States, Brazil, South America, Latin America, and Caribbean
116. 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
117. 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
118. 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
119. 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
120. 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
121. 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
122. 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
123. 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
124. 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
125. 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
126. 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
127. 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
128. 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
129. 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
130. 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
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
141. Electronic Commerce in Developing Countries: Issues for Domestic Policy and WTO Negotiations
- Author:
- Catherine L. Mann
- Publication Date:
- 03-2000
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Electronic commerce and its related activities over the internet can be the engines that improve domestic economic well-being through liberalization of domestic services, more rapid integration into globalization of production, and leap-frogging of available technology. Since electronic commerce integrates the domestic and global markets from its very inception, negotiating on trade issues related to electronic commerce will, even more than trade negotiations have in the past, demand self-inspection of key domestic policies, particularly in telecommunications, financial services, and distribution and delivery. Because these sectors are fundamental to the workings of a modern economy, liberalization here will rebound to greater economic well-being than comparable liberalization in more narrowly focussed sectors. Thus, the desire to be part of the e-commerce wave can be a powerful force to erode domestic vested interests that have slowed the liberalization of these sectors.
- Topic:
- Development, Economics, Government, International Trade and Finance, and Political Economy
142. International Economic Agreements and the Constitution
- Author:
- Richard M. Goodman and John M. Frost
- Publication Date:
- 02-2000
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- International agreements, such as the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA), generally aim to facilitate the free flow of goods and services among nations. The U.S. Supreme Court has developed a jurisprudence similarly aiming to facilitate the free flow of goods and services among the several states. That jurisprudence has developed from litigation challenging the constitutionality of state actions on the basis of the Commerce and Supremacy Clauses of the Constitution (art. I, § 8, cl. 3, and art. VI, cl. 2). In some subject areas, Commerce Clause decisions closely align with international agreements. In other areas, either or both fall short of achieving economic integration.
- Topic:
- Economics, Government, International Trade and Finance, and Political Economy
- Political Geography:
- United States and North America
143. The Globalization of Services: What Has Happened? What Are the Implications?
- Author:
- Gary Hufbauer and Tony Warren
- Publication Date:
- 10-1999
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Globalization has affected all facets of the world economy. This includes services, which in most economies are the single largest contributor to economic growth and employment. However, despite its importance to national output, the impact of globalization on services is only recently receiving the attention of researchers and policy-makers.
- Topic:
- Economics, International Trade and Finance, and Political Economy
144. Hazards and Precautions: Tales of International Finance
- Author:
- Gary Clyde Hufbauer and Erika Wada
- Publication Date:
- 09-1999
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In the wake of financial crises in Mexico (1994-95), Asia (1997-98), Russia (1998) and Brazil (1998-99), respected observers have questioned the benefits of wide-open international capital markets (Bhagwati, 1998; Krugman, 1998; Rodrik, 1998; Eichengreen, 1999). Our purpose is to identify true hazards and suggest appropriate precautions.
- Topic:
- Economics, International Trade and Finance, and Political Economy
- Political Geography:
- Russia, Asia, Brazil, and Mexico
145. Does Talk Matter After All? Inflation Targeting And Central Bank Behavior
- Author:
- Adam S. Posen and Kenneth N. Kuttner
- Publication Date:
- 09-1999
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Since 1990, a number of countries have adopted inflation targeting as their declared monetary strategy. Interpretations of the significance of this movement, however, have differed widely. To some, inflation targeting mandates the single-minded, rule-like pursuit of price stability without regard for other policy objectives; to others, inflation targeting represents nothing more than the latest version of cheap talk by central banks unable to sustain monetary commitments. Advocates of inflation targeting, including the adopting central banks themselves, have expressed the view that the transparency and communication of the inflation targeting framework grant the central bank greater short-run flexibility in pursuit of its long-run inflation goal.
- Topic:
- Economics, International Organization, International Trade and Finance, and Political Economy
146. Modeling Korean Unification
- Author:
- Marcus Noland, Sherman Robinson, and Tao Wang
- Publication Date:
- 07-1999
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- For North Korea, product market integration would generate large welfare gains, sufficient to end the famine. Additional gains could be had through military demobilization. For the South, the impact of product market integration would be trivial, but the impact of factor market integration would be considerable, affecting the composition of output, distribution of income, and rate of growth.
- Topic:
- Economics, International Trade and Finance, and Political Economy
- Political Geography:
- Israel, East Asia, and Korea
147. Sovereign Liquidity Crisis: The Strategic Case For A Payments Standstill
- Author:
- Marcus Miller and Lei Zhang
- Publication Date:
- 05-1999
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Is sovereign borrowing so different from corporate debt that there is no need for bankruptcy-style procedures to protect debtors? With the waiver of immunity, sovereign debtors who already face severe disruption from short-term creditors grabbing their currency reserves are also exposed to litigious creditors trying to seize what assets they can in a 'race of the vultures'.
- Topic:
- Economics, International Trade and Finance, and Political Economy
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