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  • Author: Edwin M. Truman
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Once again, the United States and other members of the International Monetary Fund (IMF) have been asked to address the adequacy of IMF financial resources and the distribution of voting power in the Fund. Observers are justified in thinking that they just witnessed this drama. IMF members completed an agreement on the size of IMF quota resources and governance—or voting power—reform in November 2010. As part of that agreement on the 14th general review of IMF quotas, members committed to bring forward the completion of the 15th general review of quotas to January 2014. The target was not met because the United States delayed approving the 2010 agreement until December 2015, which was necessary for the implementation of the 14th review. As a result, in December 2016, the governors of the IMF freshly resolved to complete the 15th review by the spring of 2019 or the fall of 2019 at the latest.
  • Topic: International Affairs
  • Political Geography: Global Focus
  • Author: Gary Clyde Hufbauer , Euijin Jung, (Lucy) Lu Zhiyao
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The fraught negotiations over revising the North American Free Trade Agreement (NAFTA) have focused largely on US demands to limit imports from Canada and Mexico. But one little discussed step could help the United States increase exports to Canada and Mexico in a way the Trump administration ought to support. US express shipments to its NAFTA partners are far below potential, partly due to what are called low de minimis thresholds in those countries. The de minimis threshold refers to the value of imported goods below which no duty or tax is collected, and the customs declaration is very simple.
  • Topic: International Affairs
  • Political Geography: Global Focus
  • Author: Robert Z. Lawrence
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: President Trump has asserted that trade balances are a key measure of a nation’s commercial success and that large US trade deficits prove that past trade approaches have been flawed. But trade deficits are not in fact a good measure of how well a country is doing with respect to its trade policies. Many of the assumptions on which the administration’s beliefs rest are not supported by the evidence. This Policy Brief argues that trade deficits are not necessarily bad, do not necessarily cost jobs or reduce growth, and are not a measure of whether foreign trade policies or agreements with other countries are fair or unfair. Efforts to use trade policy and agreements to reduce either bilateral or overall trade deficits are also unlikely to produce the effects the administration claims they will and instead lead to friction with US trading partners, harming the people the policies claim to help
  • Topic: International Political Economy
  • Political Geography: Global Focus
  • Author: Tetyana Payosova, Gary Clyde Hufbauer , Jeffrey Schott
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Since its inception in 1995, the World Trade Organization’s (WTO) dispute settlement mechanism has resolved an impressive number of trade disputes and has earned a reputation as the “crown jewel” of the global trading system. Today, however, the mechanism is in crisis. WTO members have failed to negotiate updates to the rulebook, including rules on dispute settlement itself. As a result, the WTO Appellate Body increasingly is asked to render decisions on ambiguous or incomplete WTO rules. Its interpretations of such provisions have provoked charges by the United States and others that binding Appellate Body rulings, which establish precedents for future cases, effectively circumvent the prerogative of member countries to revise the WTO rulebook and thus undercut the national sovereignty of WTO members. For the past few years, US officials have blocked appointments of Appellate Body members to force WTO members to negotiate new rules that address US concerns and limit the scope for judicial overreach. If this problem is not resolved, the Appellate Body soon will not have enough members to review cases and the vaunted WTO dispute settlement system will grind to a halt.
  • Topic: International Affairs
  • Political Geography: Global Focus
  • Author: William R Cline
  • Publication Date: 02-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The centerpiece of the Tax Cuts and Jobs Act (TCJA) of 2017 is the reduction in the corporate tax rate from 35 percent to 21 percent. The Joint Committee on Taxation has estimated the net revenue loss from the tax overhaul at $1 trillion over the next decade. The underlying premise of the legislation is that lower corporate taxes will spur growth, with trickle-down wage benefits that spread the resulting economic gains.
  • Topic: International Affairs
  • Political Geography: Global Focus
  • Author: Martin Chorzempa
  • Publication Date: 02-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Formidable barriers stand between the modern financial system and the hundreds of millions of Chinese citizens still using costly informal credit. For many, the financial data that could be used to give them a credit score that would lead to a fair priced loan exist but are not being used. This analysis finds that the most difficult barriers cutting these data off from their potential use for greater financial inclusion are the legal and political restrictions on data sharing and use, economic and competitive concerns from data holders, and the technical difficulty of integrating disparate systems. Policies that encourage coordination between public authorities and private actors in finance and technology can go a long way towards making these data available and driving access to credit in China. This shift would not only help borrowers: It would also encourage the needed economic rebalancing towards consumption, increase competition in the financial sector, raise efficiency through better credit allocation, and contribute to sustainable economic growth and social welfare.
  • Topic: International Political Economy
  • Political Geography: Global Focus
  • Author: Olivier Blanchard, Eugenio Cerutti, Lawrence H. Summers
  • Publication Date: 11-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Blanchard, Cerutti, and Summers explore two issues triggered by the global financial crisis. First, in most advanced countries, output remains far below the prerecession trend, suggesting hysteresis. The authors look at 122 recessions over the past 50 years in 23 countries and find that a high proportion of them have been followed by lower output or even lower growth. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. The authors estimate a Phillips curve relation over the past 50 years for 20 countries and find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s but has remained roughly stable since then. The paper concludes with implications for monetary policy.
  • Topic: Economics, Labor Issues, Monetary Policy, Financial Crisis, GDP
  • Political Geography: Global Focus
  • Author: Olivier Blanchard, Gustavo Adler, Irineu de Carvalho Filho
  • Publication Date: 11-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Many emerging-market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. The authors study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, they look at the response of different countries to plausibly exogenous gross inflows and explore the cross-country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, they find that larger FXI leads to less exchange rate appreciation in response to gross inflows.
  • Topic: Economics, Emerging Markets, Foreign Exchange, Monetary Policy
  • Political Geography: Global Focus
  • Author: Olivier Blanchard, Jonathan D. Ostry, Atish R. Ghosh, Marcos Chamon
  • Publication Date: 11-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The workhorse open-economy macro model suggests that capital inflows are contractionary because they appreciate the currency and reduce net exports. Emerging-market policymakers, however, believe that inflows lead to credit booms and rising output, and the evidence appears to go their way. To reconcile theory and reality, the authors extend the set of assets included in the Mundell-Fleming model to include both bonds and nonbonds. At a given policy rate, inflows may decrease the rate on nonbonds, reducing the cost of financial intermediation, potentially offsetting the contractionary impact of appreciation. The authors explore the implications theoretically and empirically and find support for the key predictions in the data.
  • Topic: Economics, Emerging Markets, International Trade and Finance, Monetary Policy
  • Political Geography: Global Focus
  • Author: William R. Cline
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Cline critiques OECD findings on "too much finance," which seem to imply that the optimal amount of credit in an economy is zero, given the linear specification of the main tests. If these results were taken literally, there would be a radical policy implication: Growth would be maximized by completely eliminating credit finance. He then finds that the negative impact of additional finance on growth is reversed when the appropriate (purchasing-power-parity) per capita income is applied and country fixed effects are removed. Separate tests for countries with intermediated finance below and above 60 percent of GDP show a significant positive effect of finance on growth in the lower group but an insignificant effect in the higher group. He also responds to critics of his earlier study.
  • Topic: Economics, International Political Economy, International Trade and Finance, GDP
  • Political Geography: Global Focus