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  • Author: Simeon Djankov, Pinelopi Koujianou Goldberg, Lisa Hyland, Eva (Yiwen) Zhang
  • Publication Date: 04-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Despite many significant gains by women in the paid workforce in recent decades, the percentage of women participating in the labor force has remained lower than the percentage of male participants. Now, in response to the COVID-19 pandemic and the global economic downturn it precipitated, the gap in labor force participation between men and women in some economies has actually widened, with potentially damaging repercussions for women’s career prospects and pay. The pandemic has disproportionately affected sectors employing more women, such as retail stores, restaurants, and the hotel and hospitality business. An increase in family caregiving responsibilities because of school and childcare closures has also fallen on working mothers' shoulders. Both factors have pulled women out of the labor force. The authors track trends in male and female labor force participation in 43 countries and find substantial differences across countries in the way women’s participation has been affected relative to that of men. In some countries, such as Colombia, Chile, and Cyprus, the gender gap in labor force participation widened the most during the pandemic. The gender gap also widened in the United States, driving 2.5 million women from their jobs in what Vice President Kamala Harris called a “national emergency” for women. In other economies, such as Luxembourg and Lithuania, the gender gap in labor force participation, unexpectedly, shrank during the early period of the pandemic. On average, female employees have fared better in countries where women are less concentrated in the services sector, less likely to be employed as temporary workers, and where laws supported greater equality at the onset of the crisis. Greater government expenditure on childcare in the pre-COVID-19 era, however, does not appear to have insulated female workers from the damaging repercussions of the pandemic.
  • Topic: Economics, Gender Issues, Labor Issues, Women, Services, COVID-19, Empowerment
  • Political Geography: Colombia, Chile, Cyprus, Global Focus, United States of America
  • Author: Joseph E. Gagnon, Steve Kamin, John Kearns
  • Publication Date: 05-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: COVID-19 vaccination programs are generally understood to be a prerequisite for a return to normalcy in our social and economic lives. Emergency measures to research, test, produce, and distribute vaccines have been expensive, but increases in GDP resulting from the vaccines are expected to exceed those costs by wide margins. Few studies have quantified the economic costs and benefits of different rates of COVID-19 vaccination, however. This Policy Brief focuses on developing such a quantitative assessment for the United States; the approach may be applied to other countries as well. Two illustrative scenarios support the conclusion that most plausible options to accelerate vaccinations would have economic benefits that far exceed their costs, in addition to their more important accomplishment of saving lives. This Policy Brief shows that if, for example, the United States had adopted a more aggressive policy in 2020 of unconditional contracts with vaccine producers, the up-front cost would have been higher but thousands of lives would have been saved and economic growth would have been stronger. Instead, the federal government conditioned its contracts on the vaccines’ being proven safe and effective. The projections presented in this analysis show that even if unconditional contracts led to support for vaccines that failed the phase III trial and ultimately were not used, the cost would have been worth it.
  • Topic: Economics, Health, Crisis Management, COVID-19, Health Crisis
  • Political Geography: North America, United States of America
  • Author: Julia Coronado, Simon Potter
  • Publication Date: 03-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The US monetary system faces significant challenges from advances in technology and changes in the macroeconomy that, left unaddressed, will threaten the stability of the US economy and financial system. At the same time, low interest rates mean that central banks will not have the policy ammunition they had in the past during the next recession. The Federal Reserve needs new tools to meet its mandates of price stability and maximum employment. It also needs to preserve the safety and soundness of the financial system in a rapidly digitizing world. The authors propose a Fed-backed digital currency to solve both problems. Their proposal creates a regulated system of digital currency accounts for consumers managed by digital payment providers and fully backed by reserves at the Fed. The system would be limited in size, to preserve the functions and stability of the existing banking system. Fed backing would mean low capital requirements, which would in turn facilitate competition. Low fees and no minimum balance requirements in the new system would also help financial institutions reach the roughly 25 percent of the US population that is currently either unbanked or underbanked. Digital accounts for consumers could also provide a powerful new stabilization tool for both monetary and fiscal policies. For fiscal policy, it could facilitate new automatic stabilizers while also allowing the Fed to provide quantitative easing directly to consumers. This tool could be used in a timely manner with broad reach to all Americans.
  • Topic: Economics, Government, Monetary Policy, Banks, Macroeconomics
  • Political Geography: North America, United States of America
  • Author: Kristin Forbes, Joseph E. Gagnon, Christopher G. Collins
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper models inflation by combining the multicountry framework of one of its authors (Forbes) with the nonlinear specification proposed by the other two (Gagnon and Collins). The results find strong support for a Phillips curve that becomes nonlinear when inflation is low, in which case excess economic slack has little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. The estimates also show a significant and economically meaningful Phillips curve relationship between slack and inflation when slack is negative (i.e., when output is above long-run potential). In this nonlinear model, international factors play a large role in explaining headline inflation, a role that has increased over time, supporting the results of Forbes’ linear model.
  • Topic: Economics, Inflation, Data
  • Political Geography: Global Focus
  • Author: Julia Coronado, Simon Potter
  • Publication Date: 04-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the second part of their Policy Brief, Coronado and Potter discuss how the system of digital payment providers (DPPs) proposed in their first Policy Brief on this topic adds a new weapon to the monetary toolkit that could be implemented in a timely, effective, and inclusive manner. They describe how a digital currency backed by the Federal Reserve could augment automatic fiscal stabilizers and—more importantly—harness the power of “helicopter” money or quantitative easing directly to consumers in a disciplined manner. To implement QE directly to consumers, Coronado and Potter propose the creation of recession insurance bonds (RIBs)—zero-coupon bonds authorized by Congress and calibrated as a percentage of GDP sufficient to provide meaningful support in a downturn. Congress would create these contingent securities; Treasury would credit households’ digital accounts with them. The Fed could purchase them from households in a downturn after its policy rate hits zero. The Fed’s balance sheet would grow by the value of RIBs purchased; the initial matching liability would be deposits into the DPP system. The mechanism is easy for consumers to understand and could boost inflation expectations more than a debt-financed fiscal stimulus could.
  • Topic: Economics, Government, Monetary Policy, Insurance
  • Political Geography: North America, United States of America
  • Author: Soyoung Han, Marcus Noland
  • Publication Date: 04-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Summer Olympic Games are the most globalized sporting event on earth. Until now, the Summer Games had been postponed only three times—in 1916, 1940, and 1944—all because of world wars. So, the announcement that in response to the COVID-19 pandemic, the 2020 Tokyo Games would be postponed by a year is significant, implicit testimony to the destructiveness of the pandemic. The Tokyo Games were expected to continue the evolution of the Games away from the aristocratic European milieu where the modern Olympic movement began. As poverty has declined and incomes across the global economy have converged, participation in the Games has broadened and the pattern of medaling has become more pluralistic, particularly in sports with low barriers to entry in terms of facilities and equipment. This Policy Brief presents forecasts of medal counts at the 2020 Tokyo Summer Games had they had gone on as scheduled, setting aside possible complications arising from the coronavirus pandemic. The forecasts are not just a depiction of what might have been. They establish a benchmark that can be used when the Games are eventually held, to examine the impact of the uneven incidence of the pandemic globally.
  • Topic: Economics, Globalization, Sports, Olympics
  • Political Geography: Japan, Asia, Global Focus
  • Author: Maurice Obstfeld, Adam S. Posen, Olivier Blanchard, Chad P. Bown, Cullen S. Hendrix, Ana González, Simeon Djankov, Anne-Laure Kiechel, Anna Gelpern, Sean Hagan, Adnan Mazarei, Christopher G. Collins, Simon Potter, Edwin M. Truman, Joseph E. Gagnon
  • Publication Date: 04-2020
  • Content Type: Special Report
  • Institution: Peterson Institute for International Economics
  • Abstract: The world's leading economic powers must cooperate more to combat the health and economic shocks resulting from the COVID-19 pandemic. In a new PIIE Briefing, Peterson Institute experts outline how collective action by the Group of Twenty (G20) nations can make a difference. The PIIE agenda includes removal of trade barriers impeding the flow of medical supplies and food, and more money for research, testing, and disease control, especially for debt-burdened low-income countries. The World Bank and the World Health Organization need more resources to relieve suffering, and the International Monetary Fund must step up to stabilize the world financial system.
  • Topic: Economics, Health, World Health Organization, International Monetary Fund, World Bank, G20, Coronavirus
  • Political Geography: Global Focus
  • Author: Chad P. Bown
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: While the public was transfixed by the Trump administration’s policies alleging that imports were a threat to America’s national security during 2017–20, there was a concomitant and more quiet US policy shift on the export side. Addressing the national security threat presented by exports posed different economic and institutional challenges from those associated with import policy, including the acknowledgment that export controls for legitimate national security reasons can be the first-best policy to confront the problem at its source. Yet, export controls could also be misused as a beggar-thy-neighbor policy to redistribute economic well-being across countries, even from one ally to another. This paper describes how US export control policy evolved over 2017–20, as well as the international institutions—first the Coordinating Committee for Multilateral Export Controls (COCOM), then the Wassenaar Arrangement—historically tasked with multilateralizing US export restrictions used to protect national security. With the potential for US export control policy to brush up more frequently against WTO rules designed to limit the use of export restrictions, the paper also highlights new challenges for the WTO’s system of resolving trade disputes. Overall, a US failure to strike the right balance for its export control policy would result in it being ineffective at addressing national security risks, costly for the economy, and problematic for trade and diplomatic relations.
  • Topic: Economics, Government, National Security, Exports, Trade
  • Political Geography: North America, United States of America
  • Author: Olivier Blanchard, Thomas Philippon, Jean Pisani-Ferry
  • Publication Date: 06-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The measures that most governments took in response to the sudden collapse in economic activity during the COVID-19 lockdowns nearly exclusively focused on protecting vulnerable workers and firms. These measures included unemployment benefits, grants, transfers, loans at low rates, and tax deferrals. As lockdowns are lifted, governments must shift policies toward supporting the recovery and design measures that will limit the pain of adjustment while preserving productive jobs and firms. This Policy Brief explores how such measures can be designed, with particular emphasis on Europe and the United States. The authors propose a combination of unemployment benefits to help workers, wage subsidies and partially guaranteed loans to help firms, and debt restructuring procedures for small and medium-sized companies handicapped by excessive legacy debt from the crisis.
  • Topic: Debt, Economics, Government, Labor Issues, Unemployment, Coronavirus
  • Political Geography: Europe, North America, United States of America
  • 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, Currency
  • Political Geography: North America, United States of America
  • Author: Joseph E. Gagnon, 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, Global Bond Market
  • Political Geography: Global Focus
  • Author: Olivier Blanchard, Lawrence H. Summers
  • Publication Date: 02-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: With interest rates persistently low or even negative in advanced countries, policymakers have barely any room to ease monetary policy when the next recession hits. Fiscal policy will have to play a major and likely dominant role in stimulating the economy, requiring policymakers to fundamentally reconsider fiscal policy. Blanchard and Summers argue for the introduction of what they call “semiautomatic” stabilizers. Unlike purely automatic stabilizers (mechanisms built into government budgets that automatically—without discretionary government action or explicit triggers—increase spending or decrease taxes when the economy slows or enters a recession), semiautomatic stabilizers are targeted tax or spending measures that are triggered if, say, the output growth rate declines or the unemployment rate increases beyond a specified threshold. The authors argue that the trigger should be changes in unemployment rather than changes in output, and the design of semiautomatic stabilizers, whether they focus on mechanisms that rely primarily on income or on intertemporal substitution effects (changing the timing of consumption), depends crucially on the design of discretionary policy.
  • Topic: Economics, Government, Monetary Policy, Finance
  • Political Geography: Global Focus, United States of America
  • Author: Chad P. Bown, Aksel Erbahar, 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, Trade
  • Political Geography: Global Focus
  • Author: David Reifschneider, 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, Federal Reserve
  • Political Geography: North America, Global Focus, United States of America
  • Author: Chad P. Bown, 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, Donald Trump
  • Political Geography: North America, United States of America
  • Author: Gonzalo Huertas
  • Publication Date: 09-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The unrelenting surge in prices in Venezuela has crippled the economy and deepened the humanitarian crisis there. Huertas lays out a feasible stabilization plan to stop Venezuela’s hyperinflation. The extent of the humanitarian crisis and shortage of basic goods and services suggests that, on the fiscal side, a stabilization plan should focus primarily on reallocating rather than reducing spending. The authorities should avoid austerity policies and instead spend on taking care of the Venezuelan people. Stabilizing the price level while providing relief to the country’s population would require significant financial assistance from the rest of the world, so it is critical that Venezuela secure strong financial support from the international community. Successful stabilization requires a credible plan to transition to a responsible fiscal policy, the financial resources to carry it out, and the political will to sustain it.
  • Topic: Security, Economics, Finance, Inflation, Humanitarian Crisis
  • Political Geography: South America, Venezuela
  • 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, Monetary Policy
  • Political Geography: North America, United States of America
  • Author: Gary Clyde Hufbauer , Zhiyaou (Lucy) Lu
  • Publication Date: 10-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In early 2019, several important members of the World Trade Organization (WTO) submitted noteworthy proposals in a realm of international commerce that has evolved faster than rules to govern it: e-commerce or digital trade. While countries agree on less controversial subjects like banning unsolicited commercial electronic messages, the three leading WTO members—China, the European Union, and the United States—have big differences in their approaches to more challenging issues: data flows, data localization, privacy invasions by data collectors, transfer of source code, imposition of customs duties and internet taxes, and internet censorship. Their differing viewpoints lead Hufbauer and Lu to conclude that the prospect of reaching a high-level WTO e-commerce agreement is not promising. To reach an agreement, either most of the contentious issues must be dropped or the number of participating countries must be sharply reduced. A WTO accord, even of low ambition, would have value if only to establish basic digital norms on matters such as banning unsolicited commercial messages and protecting online consumers from fraudulent practices. A more ambitious accord covering the controversial issues should be negotiated in bilateral and/or plurilateral/regional pacts rather than in the WTO.
  • Topic: Economics, World Trade Organization, Finance, Privacy, Data
  • Political Geography: China, Europe, Asia, North America, United States of America, European Union
  • Author: Chad P. Bown, 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, Trade
  • Political Geography: Japan, Europe, Asia, North America, United States of America, European Union
  • 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, Central Bank
  • Political Geography: North America, Global Focus, United States of America
  • Author: David Reifschneider, David Wilcox
  • Publication Date: 11-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Federal Reserve faces two important monetary policy challenges: First, since the Great Recession it has struggled to move inflation convincingly up to the 2 percent target level. Second, during the next recession it will struggle to deliver enough support to the economy unless the recession is unusually mild. As a result, the search is on for alternative policy frameworks that might allow the Fed to achieve its monetary policy objectives more effectively. Among the alternatives is average inflation targeting (AIT). The basic idea is simple: Instead of aiming to return inflation over the medium term to the target rate of 2 percent, the Fed would aim to return the average of inflation over some period to the target rate. The crucial innovation of AIT is that when inflation has been running below the target rate, it would have the Fed aim for above-target inflation in the future, in order to bring average inflation up toward the target. Simulations of the Fed’s workhorse econometric model of the US economy (the FRB/US model) suggest that AIT would be a weak addition to the Fed’s policy toolkit for dealing with recessions and persistently low inflation. In addition, simple versions of AIT would sometimes compel the Fed to run an undesirably restrictive monetary policy. AIT is thus not a very appealing alternative to the current framework.
  • Topic: Economics, Global Recession, Monetary Policy, Federal Reserve
  • Political Geography: North America, Global Focus, United States of America
  • Author: Sherman Robinson, Karen Thierfelder
  • Publication Date: 11-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The terms of the US-China trade war change often, but the tariff escalations have inflicted documented economic damage on both countries. Expanding the conflict will only increase the damage and reverberate across the world economy. This Policy Brief uses a computable general equilibrium model of the global economy to analyze three scenarios that could unfold in coming months. The first scenario is the current situation (as of June 2019). Two additional scenarios assume implementation of proposed US tariffs and Chinese responses. The models project the situation after the two countries and the rest of the world adjust across a time horizon of three to five years. For the United States, higher tariffs raise prices and reduce demand for consumers and producers. For China, the tariffs raise the prices of consumer goods but have less direct impact on producers, because the Chinese have exempted some intermediate inputs. US exports and imports decline under all three scenarios. But China can successfully divert its exports away from the United States and escape maximum economic damage.
  • Topic: Economics, Global Markets, Finance, Trade Wars, Trade
  • Political Geography: China, Asia, North America, United States of America
  • Author: Cullen S. Hendrix, Sooyeon Kang
  • Publication Date: 07-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The nature and magnitude of geopolitical risk is changing more rapidly than the ability to anticipate it, with increasingly severe economic consequences. This Policy Brief discusses the economic costs and risks associated with episodes of political instability, arguing that firms, government agencies, and international institutions must update their forecasting and risk assessment efforts to take global factors into account. Since the global financial crisis, political instability has shifted from emerging-market countries in the developing world to larger, more globally impactful econo¬mies. Acknowledging this changing risk profile—and developing better tools to predict major episodes of instability—will allow both policymakers and firms to plan with greater confidence.
  • Topic: Economics, Geopolitics, Economy, Political stability
  • Political Geography: Global Focus
  • Author: Alvaro Leandro, 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, Risk
  • Political Geography: Europe, Global Focus
  • Author: Monica de Bolle, 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, Macroeconomics
  • Political Geography: Global Focus
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 09-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For years China has been one of the world’s most rapidly growing sources of outward foreign direct investment. Since peaking in 2016, however, Chinese outward investments, primarily to the United States but also the European Union, have declined dramatically, especially in response to changes in China’s domestic rules on capital outflows and in the face of rising nationalism in the United States. Concerns about growing Chinese influence in other economies, the ascendant role of an authoritarian government in Beijing, and the possible security implications of Chinese dominance in the high-technology sector have put Chinese outward investments under intense international scrutiny. This Policy Brief analyzes the most recent trends in Chinese investments in the United States and the European Union and reviews recent political and regulatory changes both have adopted toward Chinese inward investments. It also explores the emerging transatlantic difference in the regulatory response to the Chinese information technology firm Huawei. Concerned about national security and as part of the ongoing broader trade friction with China, the United States has cracked down far harder on the company than the European Union.
  • Topic: Economics, International Trade and Finance, National Security, Foreign Direct Investment, Investment
  • Political Geography: China, Europe, Asia, North America, United States of America
  • Author: Douglas A. Irwin
  • Publication Date: 05-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Do trade reforms that significantly reduce import barriers lead to faster economic growth? In the two decades since the critical survey of empirical work on this question by Francesco Rodriguez and Dani Rodrik in 2000, new research has tried to overcome the various methodological problems that have plagued previous attempts to provide a convincing answer. This paper examines three strands of recent work on this issue: cross-country regressions focusing on within-country growth, synthetic control methods on specific reform episodes, and empirical country studies looking at the channels through which lower trade barriers may increase productivity. A consistent finding is that trade reforms that significantly reduce import barriers have a positive impact on economic growth, on average, although the effect differs across countries. Overall, these research findings should temper some of the previous agnosticism about the empirical link between trade reform and economic performance.
  • Topic: Economics, Reform, Economic Growth, Trade
  • Political Geography: Global Focus
  • Author: Olivier Blanchard, Takashi Tashiro
  • Publication Date: 05-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For many years, the Japanese government has promised an eventual return to primary budget surpluses, but it has not delivered on these promises. Its latest goal is to return to primary balance by 2025. Blanchard and Tashiro, however, argue that, in the current economic environment in Japan, primary deficits may be needed for a long time, because they may be the best tool to sustain demand and output, alleviate the burden on monetary policy, and increase future output. What primary deficits are used for, however, is equally important, and the Japanese government should put them to better use. The authors recommend that, given Japan’s aging population, the government should spend on measures aimed at increasing fertility—and by implication population and output growth—which are likely to more than pay for themselves.
  • Topic: Economics, Government, Budget, Fiscal Policy, Deficit
  • Political Geography: Japan, Asia
  • Author: Lee Buchheit, Guillaume Chabert, Chanda DeLong, Jeromin Zettelmeyer
  • Publication Date: 05-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper attempts to provide a playbook for the sovereign debt restructuring process, drawing on the experience with sovereign debt restructuring since the 1980s. It begins with a discussion of the participating actors and their interests. It then describes the considerations that must be weighed in designing, negotiating, and concluding a debt restructuring, in light of two problems: asymmetric information between the debtor and the creditors, and creditor coordination problems, which can lead to free riding (the “holdout” problem). The paper focuses on how these problems, which can lead to inefficiently negotiated outcomes, can be managed and minimized in practice.
  • Topic: Debt, Economics, Sovereignty, Finance
  • Political Geography: Global
  • Author: Chad P. Bown
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: In 2018, the United States suddenly increased tariffs on nearly 50 percent of its imports from China. China immediately retaliated with tariffs on more than 70 percent of imports from the United States. This paper assesses what happened in 2018 and attempts to explain why. It first constructs a new measure of special tariff protection to put the sheer scope and coverage of the 2018 actions into historical context. It then uses the lens provided by the 2018 special tariffs to explain the key sources of economic and policy friction between the two countries. This includes whether China’s state-owned enterprises and industrial subsidies, as well as China’s development strategy and system of forcibly acquiring foreign technology, were imposing increasingly large costs on trading partners. Finally, it also examines whether the US strategy to provoke a crisis—which may result in a severely weakened World Trade Organization—was deliberate and out of frustration with the institution itself.
  • Topic: Economics, International Trade and Finance, World Trade Organization, Bilateral Relations, Trade Wars, Donald Trump, Imports
  • Political Geography: China, Asia, North America, United States of America
  • Author: Joseph E. Gagnon, Christopher G. Collins
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The Phillips curve, which traces out a negative relationship between inflation and unemployment, has undergone tremendous changes over more than 100 years. Some researchers argue that the slope of the curve in the United States fell substantially around 20 years ago so that unemployment now has little or no effect on inflation. This paper shows that another hypothesis is equally consistent with the data: The Phillips curve may be nonlinear when inflation is low, with the economy having operated in the flat region of the curve for most of the past 20 years. The next few years may be decisive in the debate between these hypotheses, as unemployment has returned to a range in which a nonlinear curve ought to display significant steepness. A flat Phillips curve implies little change in inflation going forward, but a nonlinear curve implies moderate increases in inflation over the next few years.
  • Topic: Economics, Inflation, Unemployment
  • Political Geography: North America, United States of America
  • Author: Maria C. Latorre, Zoryana Olekseyuk, Hidemichi Yonezawa, Sherman Robinson
  • Publication Date: 03-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines 12 economic simulation models that estimate the impact of Brexit (Britain’s exit from the European Union). Most of the studies find adverse effects for the United Kingdom (UK) and the EU-27. The UK’s GDP losses from a hard Brexit (reversion to World Trade Organization rules due to a lack of UK-EU agreement) range from –1.2 to –4.5 percent in most of the models analyzed. A soft Brexit (e.g., Norway arrangement, which seems in line with the nonbinding text of the political declaration of November 14, 2018, on the future EU-UK relationship) has about half the negative impact of a hard Brexit. Only two of the models derive gains for the UK after Brexit because they are based on unrealistic assumptions. The authors analyze more deeply a computable general equilibrium model that includes productivity and firm selection effects within manufacturing sectors and operations of foreign multinationals in services. Based on this latest model, they explain the likely economic impact of Brexit on a wide range of macroeconomic variables, namely GDP, wages, private consumption, capital remuneration, aggregate exports, aggregate imports, and the consumer price index.
  • Topic: Economics, World Trade Organization, Brexit, Multinational Corporations
  • Political Geography: Britain, Europe, European Union
  • Author: Jeromin Zettelmeyer
  • Publication Date: 03-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: ermany’s new National Industrial Strategy 2030, unveiled by Economy Minister Peter Altmaier in February 2019, advocates an aggressive industrial policy. Although it stays clear of the virulent economic nationalism of the 1930s and the protectionism of President Donald Trump, its tone and much of its content are unmistakably nationalist. Zettelmeyer concludes that three of Altmaier’s five proposals—attempting to further raise the German share of manufacturing, restricting non-EU imports of intermediate goods, and promoting national champions in Germany and the European Union—are bad policies. The two remaining ideas—preventing some foreign takeovers and ramping up state support for certain technologies—are somewhat easier to justify, based on either market failures or the risk of technological dependence on foreign companies susceptible to political interference. But even in these areas, the specific policies proposed may well do more harm than good.
  • Topic: Economics, Nationalism, European Union, Donald Trump
  • Political Geography: Europe, Germany
  • Author: Cullen S. Hendrix, Sooyeon Kang
  • Publication Date: 07-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The nature and magnitude of geopolitical risk is changing more rapidly than the ability to anticipate it, with increasingly severe economic consequences. This Policy Brief discusses the economic costs and risks associated with episodes of political instability, arguing that firms, government agencies, and international institutions must update their forecasting and risk assessment efforts to take global factors into account. Since the global financial crisis, political instability has shifted from emerging-market countries in the developing world to larger, more globally impactful econo¬mies. Acknowledging this changing risk profile—and developing better tools to predict major episodes of instability—will allow both policymakers and firms to plan with greater confidence.
  • Topic: Economics, Financial Crisis, Geopolitics, Political stability, Risk
  • Political Geography: Global Focus
  • Author: Felipe González, Nicolas Véron
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: China's rapid rise and unique economic system and the increasingly aggressive and disruptive US trade policy are posing an unprecedented threat to the global rules-based trading and economic system. The European Union has critical interests at stake in the current escalation, even as it has so far been comparatively spared from US trade policy belligerence and China's reactions. In this context, the European Union should adopt an independent and proactive stance, building on recent efforts and going beyond them. The European Union, even more than the United States or China, has a strategic interest in the preservation of the global rules-based order embodied by the World Trade Organization (WTO). It must play a leading role in steering WTO reform and modernization, working closely with broadly aligned third countries such as Japan and other players. It should expand its outreach beyond its immediate negotiating counterparts in both the United States and China, and leading European officials at both the EU and member state levels should work at better understanding China. While strengthening its domestic policy instruments to address new challenges, such as the screening of foreign direct investment for security purposes, the European Union must also resist its own temptations of protectionism and economic nationalism. In support of these objectives, the European Union should prepare itself for difficult decisions, which may involve revising some of its current red lines in international trade negotiations. Conversely, the European Union should stand firm on principles such as refusing one-sided agreements and rejecting abusive recourse to national security arguments in trade policies. The European Parliament, in working with the European Council and the European Commission, will have a critical role to play in steering the European Union through these challenging times.
  • Topic: International Relations, Economics, Trade Wars, Trade Policy
  • Political Geography: China, Europe, Asia, North America, United States of America, European Union
  • Author: Alvaro Leandro, 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, Regional Integration, Risk, Fiscal Policy
  • Political Geography: Europe
  • Author: Lee G. Branstetter, Britta Glennon, J. Bradford Jensen
  • Publication Date: 06-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries to many parts of the developing world, creating an innovation system that spans the globe. Like many aspects of globalization, including the offshoring of manufacturing over recent decades, the globalization of R&D raises concerns about US competitiveness and loss of technological leadership. At the same time, the spreading geographic location of innovation presents opportunities for US-based companies if the right policies are adopted to seize them. The research presented in this Policy Brief demonstrates that US innovators continue to remain involved in important ways in US MNCs' global R&D activities, and fears of a hollowing out of US capacity to innovate—based probably on previous fears about the hollowing out of US-based manufacturing—may be overstated. Indeed, the large and growing pool of highly educated scientists and engineers in the developing world could increase the rate of global productivity growth, to the advantage of US-based companies and the world in general. The authors conclude that a productive way to capitalize on the globalization of MNC R&D is not to oppose it but to combine emerging-market talent with MNC experience so that innovation can flourish to improve global living standards and fuel economic progress.
  • Topic: Economics, Globalization, Multinational Corporations, Risk, Innovation
  • Political Geography: North America, United States of America
  • Author: Marcus Noland
  • Publication Date: 06-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: In 2016, the United States elected an avowedly protectionist president. This paper uses US county-level electoral data to examine this outcome. The hypothesis that support for protectionism was purely a response to globalization is rejected. Exposure to trade competition encouraged a shift to the Republican candidate, but this effect is mediated by race, diversity, education, and age. If the turn toward protectionism is due to economic dislocation, then public policy interventions could mitigate the impact and support the reestablishment of a political consensus for open trade. If, however, the drivers are identity or cultural values, then the scope for constructive policy intervention is unclear.
  • Topic: Economics, Politics, Donald Trump, Protectionism
  • Political Geography: China, Asia, North America, United States of America
  • Author: Edwin M. Truman
  • Publication Date: 01-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: After the Obama administration's four failed attempts to win congressional approval of the 2010 quota and governance reform for the International Monetary Fund (IMF), it is time to recognize that implementation of the agreement may be indefinitely delayed. The international community must therefore prepare for the likelihood of a new world order in which the IMF augments its funding and reforms its governing structure without US participation. This Policy Brief examines four options for the IMF: First, wait for the US Congress to pass the necessary legislation. Second, complete a new, augmented IMF quota and governance package and again wait for the United States to give its formal approval. Third, bypass the US Congress and risk losing the US veto over a few important decisions on the structure of the IMF. Fourth, let the Fund adopt a reform and financing package within a structure that potentially excludes US participation and eliminates the US veto in the new entity.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Governance, Reform
  • Author: Ryan Rutkowski
  • Publication Date: 01-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Faced with slowing economic growth, Chinese policymakers now recognize that the service sector of the economy—transportation, communications, finance, and health care—could spur economic activity and employment. The catch is that China must reform these and other areas to accomplish this goal. Chinese leaders have outlined an ambitious agenda for reform, but myriad vested interests could slow or block their plans. This Policy Brief evaluates the steps taken so far and the difficulties that lie ahead in implementing them. If policymakers fail to reform and open up the service sector, they run the risk of seriously impairing China's growth prospects.
  • Topic: Economics, International Trade and Finance, Labor Issues, Financial Crisis, Reform
  • Political Geography: China
  • Author: Theodore H. Moran, Lindsay Oldenski
  • Publication Date: 02-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Japan is reemerging as the most important source of foreign direct investment (FDI) in the United States. In 2013 Japanese firms were the largest source of new inflows of FDI into the United States for the first time since 1992, injecting almost $45 billion of fresh investment into the US economy in that year alone. Moran and Oldenski show how Japanese investment in the United States differs from that of other countries along several dimensions. These differences not only make FDI by Japanese firms especially valuable but point to some important policy goals for attracting it. Although the automotive sector is the single largest industry for Japanese investment in the United States, the focus should not be on competing to attract the auto industry in particular nor should any active industrial policy of "picking winners" be pursued. Japanese investment is unique because of its research and development intensity, manifested across a number of industries in which Japanese multinationals invest other than automobiles. US policy should focus on reinforcing and expanding the factors that attract high-performing firms and high-value production stages to the United States, regardless of industry.
  • Topic: Development, Economics, Foreign Direct Investment, United States
  • Political Geography: Japan
  • Author: Avinash D. Persaud
  • Publication Date: 04-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Solvency II, which the European Parliament adopted in March 2014, codifies and harmonizes insurance regulations in Europe to reduce the risk of an insurer defaulting on its obligations and producing dangerous systemic side effects. The new directive tries to achieve these aims primarily by setting capital requirements for the assets of insurers and pension funds based on the annual volatility of the price of these assets. Persaud argues that these capital requirements will impose an asset allocation on life insurers and pension funds that does not serve the interests of consumers, the financial system, or the economy. The main problem with Solvency II is that the riskiness of the assets of a life insurer or pension fund with liabilities that will not materialize before 10 or sometimes 20 years is not well measured by the amount by which prices may fall during the next year. Solvency II fails to take account of the fact that institutions with different liabilities have different capacities for absorbing different risks and that it is the exploitation of these differences that creates systemic resilience. To correct this problem, Persaud offers an alternative approach that is more attuned to the risk that a pension fund or life insurer would fail to meet its obligations when they come due and less focused on the short-term volatility of asset prices.
  • Topic: Economics, International Trade and Finance, Budget
  • Author: Jose De Gregorio
  • Publication Date: 04-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Latin America's recent economic performance has been disappointing. After a very strong recovery from the Great Recession, growth has slowed considerably, and prospects for 2015 are dim. Among the seven largest economies in the region, output is expected to contract in Argentina, Brazil, and Venezuela, and Chile, Colombia, Mexico, and Peru are projected to grow by only about 3 percent. The decline was not caused by external factors but was mostly cyclical in nature and a result of low productivity. Although monetary and fiscal policies may still have a role in supporting demand in some instances, the main problem in the region is not a lack of demand but low productivity growth. Efforts must be made to foster productivity. Institutional weakness must be addressed and inequality reduced if sustainable high growth is to resume.
  • Topic: Economics, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Latin America
  • Author: William R. Cline
  • Publication Date: 06-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For nearly three decades, the dominant view on the role of the financial sector in economic development has been that greater financial depth facilitates faster growth. However, the Great Recession has shaken confidence in that view because of the contributing role of high leverage and such financial innovations as collateralized subprime mortgage-backed assets and derivatives on them. Recent studies from the International Monetary Fund and Bank for International Settlements have argued that "too much finance" reduces growth. In an environment of new doubts about finance following the Great Recession, these studies finding that there can be too much of it seem to have struck a responsive chord. Cline warns that these findings should be viewed with considerable caution. He first shows that correlation without causation could similarly lead to the conclusion that too many doctors spoil growth, for example. He the demonstrates algebraically that if the variable of interest, be it financial depth, doctors, or any other good or service that rises along with per capita income, is incorporated in a quadratic form into a regression of growth on per capita income, there will be a necessary but spurious finding that above a certain point more of the good or service in question causes growth to decline. In some situations, finance can become excessive; the crises of Iceland and Ireland come to mind. But it is highly premature to adopt as a new stylized fact the recent studies' supposed thresholds beyond which more finance reduces growth.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Financial Crisis
  • Author: Caroline Freund, Sarah Oliver
  • Publication Date: 06-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Regulatory standards protect consumers from defective products, but they impede trade when they differ across countries. The Transatlantic Trade and Investment Partnership (TTIP) seeks to reduce distortions in the automobile and other industries. Freund and Oliver evaluate the equivalence of automobile regulations in the United States and the European Union in terms of catastrophe avoidance and estimate the trade gains from harmonization. The UN 1958 Agreement on automobiles, which harmonizes regulations among signatories, is used to quantify the trade effect of regulatory convergence. The removal of regulatory differences in autos is estimated to increase trade by 20 percent or more. The effect on trade from harmonizing standards is only slightly smaller than the effect of EU accession on auto trade. The large economic gains from regulatory harmonization imply that TTIP has the potential to improve productivity while lowering prices and enhancing variety for consumers.
  • Topic: Economics, International Trade and Finance, Treaties and Agreements, European Union
  • Political Geography: Global Focus
  • Author: Simeon Djankov
  • Publication Date: 07-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Since the promising start of its transition from a centrally planned economy to capitalism, Hungary has failed to join Western Europe in terms of living standards and democracy. The dominant political figure in Hungary, Prime Minister Viktor Orbán, shares many features with Russian president Vladimir Putin. Both view the increasing role of the state as economically beneficial, and both consider the Western European economic model to be flawed. Hungary is headed towards centrally planned capitalism, demonstrated by the partial nationalization of the banking sector, the monopolization of some sectors of the economy, and the reversal of the pension reforms of 1998. Plagued by the most persistent budget deficit of any post-communist country, Hungary's greatest challenge is to establish a fiscally sustainable growth path.
  • Topic: Communism, Economics, Politics, Governance, Authoritarianism, Russia
  • Political Geography: Hungary, Western Europe
  • Author: William R. Cline
  • Publication Date: 08-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Using his European Debt Simulation Model (EDSM), Cline examines whether and to what extent additional debt relief is needed in Greece under the new circumstances. Greece's debt burden is significantly lower than implied by the ratio of its gross debt to GDP, because of concessional interest rates on debt owed predominantly to the euro area official sector. The IMF's call for debt relief recognizes the lower interest burden but argues that the gross financing requirement is on track to exceed a sustainable range of 15 to 20 percent. But in the Fund's June Debt Sustainability Analysis that threshold would not be exceeded until after 2030. A sustainability diagnosis based on such a distant future date would seem at best illustrative rather than definitive. The euro area creditors might, nonetheless, be well advised to provide two types of interest relief: an earmarked portion of interest otherwise due to finance a public works employment program; and additional interest relief to compensate for budget shortfalls caused by growth below plan levels. The sovereign debt situation should be alleviated by carrying out the bank recapitalization directly from the European Stability Mechanism to the banks, rather than through the sovereign as the intermediary. The large increase in the ratio of gross debt to GDP imposed by bank recapitalization is mostly an optical illusion because there would be a corresponding rise in state assets, but this increase could, nonetheless, further erode perceptions of sustainability.
  • Topic: Debt, Economics, International Monetary Fund, Financial Crisis, Budget
  • Political Geography: Greece
  • Author: Jeffrey J. Schott
  • Publication Date: 08-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Korea's decision to delay joining the Trans-Pacific Partnership (TPP) talks was a tactical mistake. It is now left with primarily two options to participate: (1) ask to join the TPP, if possible between signature and entry into force, or (2) accede to the TPP after the agreement is ratified and goes into effect—either alone or as part of a group of countries seeking TPP membership. For Korea the burden of adjustment in the TPP—in terms of liberalization commitments—will probably be higher than had it joined as an original signatory. As a major trading nation, it stands to reap large gains from increased trade and investment with TPP countries and should opt to join the TPP as soon as the window for entry reopens.
  • Topic: Economics, Treaties and Agreements
  • Political Geography: South Korea
  • Author: Lindsay Oldenski
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Reshoring—when firms shift manufacturing production back to the United States—has been getting a great deal of publicity lately. Oldenski examines the most recent data on the global operations of US firms and concludes that although some companies have reversed their previous offshoring decisions, there is no evidence of a widespread reshoring trend. But this should not be considered a defeat for US competitiveness. US multinationals continue to move operations offshore, but they also continue to grow stronger, producing more in their US operations and adding more to total US exports. The structure of US manufacturing has changed, but the ability to adapt to the changing nature of global business has been and will continue to be crucial to the continued growth of US manufacturing.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Monica de Bolle
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Public lending by the Brazilian Development Bank (BNDES) may have done more harm than good in Brazil, adversely affecting real interest rates and productivity growth. Specifically, BNDES's large amounts of subsidized lending are responsible for substantial credit market segmentation, choking off monetary policy transmission. As a result, to maintain price stability the Central Bank of Brazil is forced to raise interest rates more than it might do otherwise in the absence of BNDES lending. Restoring Brazil's capacity to grow in the medium term requires a thorough rethinking of the role of BNDES. In particular, the bank's lending rates should be aligned with market prices, term and risk premia, while taking into account that, with an adequate transparency framework, public development banks can increase private sector participation instead of crowding it out.
  • Topic: Development, Economics, International Trade and Finance, Markets
  • Political Geography: Brazil, Latin America
  • Author: Theodore Moran
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For more than a decade, China has complained about what it maintains has been a pattern of erratic and politicized treatment of Chinese investors when they attempt to acquire US companies. The Chinese want the Committee on Foreign Investment in the United States (CFIUS) to be more open and transparent in its rulings and to not discriminate against Chinese firms. The United States is not likely to accede to these demands in any formal or legal manner. Moran proposes practical steps to address the concerns of Chinese investors without diluting CFIUS procedures. He provides a national security threat assessment filter, which allows Chinese investors—like investors of all nationalities—to determine when their proposed acquisitions might pose a genuine threat and when any such threat is simply not plausible. He also suggests that first-time Chinese investors seek expert counsel to overcome the secrecy surrounding CFIUS objections to figure out how to proceed with problematic acquisitions.
  • Topic: Economics, Markets, Foreign Direct Investment
  • Political Geography: United States
  • Author: Simeon Djankov
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the 15 years of President Vladimir Putin's rule, state control over economic activity in Russia has increased and is greater today than in the immediate postcommunist era. The concentration of political and economic power in Putin's hands has led to an increasingly assertive foreign policy, using energy as a diplomatic tool, while plentiful revenues from extractive industries have obfuscated the need for structural reforms at home. The West's 2014 sanctions on Russia have brought about economic stagnation, and with few visible means of growth, the economy is likely to continue to struggle. Watching Europe struggle with its own growth, in part because of deficiencies in its economic model, Russia will not be convinced to divert from state capitalism without evidence of a different, successful economic model. Changing course can only be pursued in the presence of political competition; the current political landscape does not allow for such competition to flourish
  • Topic: Economics, Politics
  • Political Geography: Russia, Europe
  • Author: Jeffrey Schott, Eujiin Jung, Cathleen Cimino-Isaacs
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Of all the free trade agreements (FTAs) concluded by Korea with its major trading partners since the turn of the century, the Korea-China FTA may be the largest in trade terms. It is, however, far from the best in terms of the depth of liberalization and the scope of obligations on trade and investment policies. Korea and China agreed to liberalize a large share of bilateral trade within 20 years, but both sides incorporated extensive exceptions to basic tariff reforms and deferred important market access negotiations on services and investment for several years. Political interests trumped economic objectives, and the negotiated outcome cut too many corners to achieve such a comprehensive result. The limited outcome in the Korea-China talks has two clear implications for economic integration among the northeast Asian countries. First, prospects for the ongoing China-Japan-Korea talks will be limited and unlikely to exceed the Korea-China outcome. Second, Korea and Japan need to strengthen their bilateral leg of the northeast Asian trilateral and the best way is by negotiating a deal in the context of the Trans-Pacific Partnership.
  • Topic: Economics, International Trade and Finance, Politics, Bilateral Relations
  • Political Geography: United States, China, Asia, Korea
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: After surviving its worst economic downturn since the Great Depression and the near collapse of its common currency, Europe is now engulfed by hundreds of thousands of desperate migrants and refugees from the Middle East and Africa. It needs new and permanent migration institutions and resources not only to accommodate the influx of refugees but also to set up a new border control system throughout the region. These demands pose a challenge for European policymaking as serious as the euro crisis of the last five years. Kirkegaard proposes a migration and mobility union, to be implemented gradually, with the goal of comprehensively reforming European migration policy.
  • Topic: Economics, Migration, Politics, Refugee Issues
  • Political Geography: Europe
  • Author: William R. Cline
  • Publication Date: 11-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The latest semiannual fundamental equilibrium exchange rate (FEER) estimates find that the US dollar is now overvalued by about 10 percent, comparable to levels in 2008 through early 2010 and again in 2011. Unlike then, the current strong dollar does not reflect a weak renminbi kept undervalued by major exchange rate intervention by China. Instead, China's current account surplus has fallen sharply relative to GDP, and its recent intervention has been to prevent excessive depreciation rather than to prevent appreciation. Additionally, declines in the real effective exchange rates (REERs) for major emerging-market economies and resource-based advanced economies, driven by falling commodity prices in recent months, have strengthened the dollar. Recent increases in the REERs for the euro area and Japan have removed their modest undervaluation identified in the last FEERs estimates in May, and the Chinese renminbi remains consistent with its FEER. The dollar's rise by nearly 15 percent in real effective terms over the past two years could impose a drag of nearly one-half percent annually on US demand growth over the next five years. As the Federal Reserve moves to normalize US monetary policy, it may need to consider a gentler rise in interest rates than it might otherwise have pursued, both to temper possible further strengthening of the dollar in response to higher interest rates and to help offset the demand compression from falling net export
  • Topic: Economics, International Trade and Finance, Monetary Policy, GDP
  • Political Geography: United States, China
  • Author: Angel Ubide
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The rules and buffers created in the last few years to enable the euro area to withstand another sudden stop of credit and market-driven panic in one or more of its member states are welcome steps, but they are widely recognized as inadequate. Ubide proposes creating a system of stability bonds in the euro area, to be issued by a new European Debt Agency, to partially finance the debt of euro area countries—up to 25 percent of GDP. These stability bonds should be initially backed by tax revenues transferred from national treasuries, but ultimately by the creation of euro area–wide tax revenues, and used to fund the operations of national governments. They could also be used for euro area–wide fiscal stimulus, to complement the fiscal policies of member states. Such bonds would strengthen the euro area economic infrastructure, creating incentives for countries to reduce their deficits but not forcing them to do so when such actions would drive their economies further into a downturn. The bonds would permit the euro area to adopt a more flexible or expansionary fiscal policy during recessions.
  • Topic: Economics, International Trade and Finance, Monetary Policy, GDP
  • Political Geography: Europe
  • 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
  • Author: J. Bradford Jensen, Dennis P. Quinn, Stephen Weymouth
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The authors investigate a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). Firms making vertical, or resource-seeking, investments abroad are less likely to file AD petitions and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, the increasing vertical FDI of US firms makes trade disputes far less likely. Data on US manufacturing firms reveals that AD filers generally conduct no intrafirm trade with filed-against countries. Persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. The authors confirm that undervaluation is associated with more AD filings. However, high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. The study also highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.
  • Topic: Economics, International Political Economy, International Trade and Finance, Foreign Direct Investment
  • Political Geography: United States of America
  • Author: Gary Clyde Hufbauer, Eujiin Jung, Tyler Moran, Martin Vieiro
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Hufbauer and colleagues critically evaluate the Organization for Economic Cooperation and Development’s ambitious multipart project titled Base Erosion and Profit Shifting (BEPS), which contains 15 "Actions" to prevent multinational corporations (MNCs) from escaping their "fair share" of the tax burden. Spurred by G-20 finance ministers, the OECD recommends changes in national legislation, revision of existing bilateral tax treaties, and a new multilateral agreement for participating countries. The proposition that MNCs need to pay more tax enjoys considerable political resonance as government budgets are strained, the world economy is struggling, income inequality is rising, and the news media have publicized instances of corporations legally lowering their global tax burdens by reporting income in low-tax jurisdictions and expenses in high-tax jurisdictions. Given that the US system taxes MNCs more heavily than other advanced countries and provides fewer tax incentives for research and development (R&D), implementation of the BEPS Actions would drive many MNCs to relocate their headquarters to tax-friendly countries and others to offshore significant amounts of R&D activity.
  • Topic: Development, Economics, International Political Economy, International Trade and Finance
  • Political Geography: Global Focus
  • Author: Adam S. Posen, Nicolas Veron
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Given no generally accepted framework for financial stability, policymakers in developing Asia need to manage, not avoid, financial deepening. This paper supports Asian policymakers' judgment through analysis of the recent events in the United States and Europe and of earlier crisis episodes, including Asia during the 1990s. There is no simple linear relationship between financial repression and stability—financial repression not only has costs but, so doing can itself undermine stability. Bank-centric financial systems are not inherently safer than systems that include meaningful roles for securities and capital markets. Domestic financial systems should be steadily diversified in terms of both number of domestic competitors and types of savings and lending instruments available (and thus probably types of institutions). Financial repression should be focused on regulating the activities of financial intermediaries, not on compressing interest rates for domestic savers. Cross-border lending should primarily involve creation of multinational banks' subsidiaries in the local economy—and local currency lending and bond issuance should be encouraged. Macroprudential tools can be useful, and, if anything, are more effective in less open or less financially deep economies than in more advanced financial centers.
  • Topic: Economics, International Trade and Finance, Markets, Politics
  • Political Geography: Asia
  • Author: Antoine Gervais
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: To date, empirical studies have focused almost exclusively on the trade exposure of the manufacturing sector, implicitly assuming that services are not tradable. However, because service trade has grown over time and now accounts for about 20 percent of global international transactions (and 30 percent of US exports), the traditional assumption that goods are tradable and services are not is increasingly inadequate. Gervais and Jensen use a unique dataset on the distribution of producers and consumers across regions of the United States to estimate the share of economic activity exposed to international competition. Their estimation method is a natural extension of the gravity model of trade and identifies trade costs in the absence of trade data. The estimated trade costs are higher on average for service industries, but there is considerable variation across industries within sectors. Using the trade cost estimates, they classify industries into tradable and nontradable categories. They find that accounting for tradable service industries nearly doubles the international exposure of the US economy, tradable services value added is unevenly distributed across geographical regions, labor productivity and wages are higher on average for tradable industries, and potential welfare gains from trade liberalization in the service sector are sizable.
  • Topic: Economics, International Trade and Finance, Labor Issues, Global Markets
  • Political Geography: Global Focus
  • Author: Robert Z. Lawrence
  • Publication Date: 06-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Over the past decade, the US economy has been plagued by sluggish wage growth and rising income inequality. The debate over inequality in the 1980s and 1990s focused on the growing disparity between the earnings of skilled and unskilled workers and the earnings of the super-rich. Growing inequality between capital and labor income has now been added to these concerns. Remarkably, the growth in real GDP per worker over the decade of the 2000s, which averaged 1.7 percent annually, was actually more rapid than in the 1970s, 1980s, or 1990s, yet in the 2000s workers saw almost no increase in their take-home pay. Consistent with this gap between labor productivity and wage growth was a pronounced decline in the share of US national income earned by workers. As labor's share has declined, the share of capital has risen and has been especially concentrated in corporate profits. As profits are far less equally distributed than wages, this increase has contributed to rising income inequality. There are several plausible reasons for this development—globalization, automation, weak bargaining power of labor, political capture, higher markups—but the natural starting point for explaining factor income shares is the neoclassical theory of the functional distribution of income enumerated by John Hicks and Joan Robinson in the 1930s. In this framework there are two possible explanations for labor's recent declining share. The first is that capital and labor are gross substitutes, and the second is that capital and labor are gross complements. Several papers have explained the recent decline in labor's share in income by claiming that capital has been substituted for labor. Lawrence puts forward the alternative "gross complements" explanation for the declining US labor share. He shows that despite a rise in measured capital-labor ratios, labor-augmenting technical change in the United States has been sufficiently rapid that effective capital-labor ratios have actually fallen in the sectors and industries that account for the largest portion of the declining labor share in income since 1980. In combination with estimates that corroborate the consensus in the literature that the elasticity of substitution is less than 1, these declines in the effective capital-labor ratio can account for much of the recent fall in labor's share in US income at both the aggregate and industry level. Paradoxically, these results also suggest that increased capital formation, ideally achieved through a progressive consumption tax, would raise labor's share in income.
  • Topic: Economics, Globalization, Markets, Labor Issues
  • Political Geography: United States
  • Author: Marcus Noland, Kevin Stahler
  • Publication Date: 05-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Decades ago, the Summer Olympic Games were an old boys' club; by many measures the Winter Games still are. Now, however, this old boys' club must compete with talented athletes from almost every country on earth, large and small, rich and poor, many of whom have found their comparative sporting niches. Looking forward, the image of the incumbent champion—rich, European, and male—will become ever more antiquated. This paper models the historical determinants of success at the Olympic Games in the context of their growing pluralism, evolving from their aristocratic and largely European male roots to the more gender-inclusive and geographically diverse showcase of athletic talent that is seen today. A wide set of socioeconomic variables is correlated with winning medals, particularly with respect to the Summer Games and women's events. Host advantage is particularly acute in judged contests such as gymnastics. However, there is evidence that the influence of correlates such as country size, per capita income, and membership in the communist bloc is declining over time as competition becomes increasingly diverse. These effects are less evident in the Winter Games, events that require significant capital investments, and judged contests.
  • Topic: Diplomacy, Economics, Gender Issues, Sports
  • Political Geography: Global Focus
  • Author: William R. Cline
  • Publication Date: 04-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Some advocates of far higher capital requirements for banks invoke the Modigliani-Miller theorem as grounds for judging that associated costs would be minimal. The M&M theorem holds that the average cost of capital to the firm does not depend on its capital structure (ratio of equity finance to debt finance), because any reduction in capital cost from switching to higher leverage using lower-cost debt is exactly offset by an induced increase in the unit cost of higher-cost equity capital as a consequence of the associated rise in risk. Statistical tests for large US banks in 2002–13 find that less than half of this M&M offset attains in practice. Higher capital requirements would thus impose increases in lending costs, with associated output costs from lower capital formation. These costs to the economy would need to be compared with benefits from lower risk of banking crises to arrive at optimal levels of capital requirements.
  • Topic: Economics, International Trade and Finance, Markets, Politics, Budget
  • Political Geography: Global Focus
  • Author: Tomas Hellebrandt, Paolo Mauro
  • Publication Date: 04-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Over the next two decades the structure of world population and income will undergo profound changes. Global income inequality is projected to decline further in 2035, largely owing to rapid economic growth in the emerging-market economies. The potential pool of consumers worldwide will expand significantly, with the largest net gains in the developing and emerging-market economies. The number of people earning between US$1,144 and US$3,252 per year in 2013 prices in purchasing power parity terms will increase by around 500 million, with the largest gains in Sub-Saharan Africa and India; those earning between US$3,252 and US$8,874 per year in 2013 prices will increase by almost 1 billion, with the largest gains in India and Sub-Saharan Africa; and those earning more than US$8,874 per year will increase by 1.2 billion, with the largest gains in China and the advanced economies.
  • Topic: Economics, Emerging Markets, Globalization, Labor Issues
  • Political Geography: Africa, Asia
  • Author: Ajai Chopra
  • Publication Date: 03-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Growth in developing Asia will need to rely more on improvements in productivity growth and less on capital deepening. Although there is no single reform path to spur productivity growth, financial system deepening is central to a more efficient allocation of capital across sectors and can facilitate innovation and technology transfer. But malfunctioning financial systems can also result in the misallocation of resources, making it important that policymakers focus less on increasing the size of the financial sector and more on improving its intermediation function. Chopra discusses the steps to mobilize Asia's ample private savings for long-term financing, especially to tackle the region's infrastructure deficit and improve access to financing for small and medium enterprises, which can help raise productivity. As many countries in Asia shift from a development model based on technology absorption to one that promotes innovation, specialized finance and investors can play a critical role in allowing innovative firms to conduct research, adopt technologies necessary for inventions, and ultimately commercialize innovations.
  • Topic: Economics, International Trade and Finance, Markets, Science and Technology
  • Political Geography: Asia
  • Author: William R. Cline
  • Publication Date: 03-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The financial sectors in Asian emerging-market economies are now relatively unlikely to provoke new financial crises, either because of reforms after the East Asian financial crisis in the later 1990s or because of the dominance of state-owned banks not subject to bank runs. Financial intermediation is surprisingly high and is consistent with higher rates of saving and investment and hence growth in the main economies of the region (as compared to, say, counterparts in Latin America). Nonetheless, there are sharply diverging patterns (e.g., high foreign ownership of banks in Korea versus minimal presence in China) and differing national structures (bank dominated, portfolio oriented, and diversified) within Asia. Cline recommends establishing long-term plans to improve efficiency in state-owned banks or reduce their dominance and pursuing bank capitalization targets at least as ambitious as those of Basel III. Cline also calls for ensuring adequate regulation of growing nonbank intermediaries, reversing a recent trend toward national barriers to foreign banks in some economies, and improving the legal security of bank regulators.
  • Topic: Economics, Emerging Markets, Financial Crisis, Reform
  • Political Geography: Asia
  • Author: Nicholas Borst, Nicolas R. Lardy
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: China's banking system is now the largest in the world, and its capital markets are rapidly approaching the size of those in the advanced economies. Borst and Lardy trace the evolution of China's financial system away from a traditional bank-dominated and state-directed financial system toward a more complex, market-based system. They analyze and outline the optimal sequence of financial reforms needed to manage the new risks accompanying this evolution.
  • Topic: Economics, Markets, Financial Crisis, Reform
  • Political Geography: China
  • Author: Jeffrey Schott, Euijin Jung, Cathleen Cimino-Isaacs
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Of all the free trade agreements (FTAs) concluded by Korea with its major trading partners since the turn of the century, the Korea-China FTA may be the largest in trade terms. It is, however, far from the best in terms of the depth of liberalization and the scope of obligations on trade and investment policies. Korea and China agreed to liberalize a large share of bilateral trade within 20 years, but both sides incorporated extensive exceptions to basic tariff reforms and deferred important market access negotiations on services and investment for several years. Political interests trumped economic objectives, and the negotiated outcome cut too many corners to achieve such a comprehensive result. The limited outcome in the Korea-China talks has two clear implications for economic integration among the northeast Asian countries. First, prospects for the ongoing China-Japan-Korea talks will be limited and unlikely to exceed the Korea-China outcome. Second, Korea and Japan need to strengthen their bilateral leg of the northeast Asian trilateral and the best way is by negotiating a deal in the context of the Trans-Pacific Partnership.
  • Topic: Economics, International Trade and Finance, Markets, Treaties and Agreements, Bilateral Relations
  • Political Geography: Korea
  • Author: Caroline Freund
  • Publication Date: 02-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: As the United States struggled with unemployment and other effects of the Great Recession in January 2010, President Barack Obama set the goal of doubling exports within five years and creating 2 million new export-related jobs. Four years later, however, exports are less than halfway toward that goal and the rate of export growth is slowing. More worrisome, the administration's strategy failed to boost average export growth from historical levels, despite the robust recovery in international trade after the collapse of 2009. The National Export Initiative (NEI) has come up short.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Markets, Maritime Commerce
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Jeffrey J. Schott, Cathleen Cimino
  • Publication Date: 02-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Proponents of liberalized trade and finance were relieved when the global economic crisis in 2008 produced a broad range of pledges from countries around the world to avoid new barriers to trade and investment (see Evenett 2013). These promises, designed to avert a replay of the Great Depression of the 1930s, were largely honored when it came to classic forms of protection (tariffs and quotas). But the spirit of that pledge was violated as countries shifted from traditional forms of protection to behind-the-border nontariff barriers (NTBs), including local content requirements (LCRs)—policies mandating that local suppliers of goods, services, and even entire projects be favored by governments and private firms, even when foreign firms offer lower costs, better quality, and faster delivery.
  • Topic: Debt, Economics, International Trade and Finance, Markets, Financial Crisis, Reform
  • Author: Ángel Ubide
  • Publication Date: 02-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Inflation in the euro area is too low, just 0.9 percent year-on-year in December 2013, and inflation expectations, measured from inflation derivative contracts, have shifted lower, indicating that markets expect some small probability of deflation in 2014 and average inflation over the next five years in the 1.25 to 1.5 percent range. The European Central Bank (ECB), however, seems to be content with this outlook. Its current projections show a very slow economic recovery and inflation at just 1.3 percent in two years' time. Yet the ECB describes the risks to inflation as balanced. This puzzling assessment might be due to the fact that the ECB's definition of price stability is less precise than that employed by other central banks, and some ECB members may interpret the definition as setting a ceiling, rather than a target, for inflation at close to but below 2 percent. But if one considers the ECB's self-assessment of success since its creation—achieving 2 percent inflation on average—its current inflation forecast of 1.3 percent would fall short of achieving its price stability mandate.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: Europe
  • Author: Joseph E. Gagnon, Brian Sack
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The dramatic increase in the Federal Reserve's balance sheet since 2009 has attracted the attention of economists, pundits, and ordinary citizens. The amount of assets held by the Fed recently crossed $4 trillion and will likely continue to rise to a peak of about $4.5 trillion. This run-up in asset holdings has resulted from the Fed's large-scale asset purchase programs, which were intended to support economic growth. However, a side-effect of these asset purchases is the creation of unprecedented amounts of liquidity in the financial system.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: United States
  • Author: Tomas Hellebrandt
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Great Recession, which cost tens of millions of jobs, a collapse of asset values around the world, and threatened the global financial system, has generated renewed concern over the long-standing issue of the fairness of the distribution of wealth and income in many societies. Economic inequality has increased in the United States and many other advanced economies over the past 20 to 30 years. This trend generated less worry in the boom years, when unemployment rates were low and cheap credit enabled consumers to borrow and maintain higher standards of living, masking the impact of growing income disparity on consumption patterns and perceptions of well-being.
  • Topic: Debt, Economics, International Trade and Finance, Poverty, Social Stratification, Financial Crisis
  • Political Geography: United States, United Kingdom, Germany, Spain, Italy, Ireland
  • Author: C. Fred Bergsten
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: A bipartisan majority in both Houses of Congress is insisting that the United States include a provision in future trade agreements that would bar currency manipulation. A letter from 60 senators to Secretary of the Treasury Jacob Lew and United States Trade Representative (USTR) Michael From an on September 23, 2013, called for "strong and enforceable foreign currency manipulation disciplines" in the Trans-Pacific Partnership (TPP) while 230 members of the House of Representatives told President Barack Obama on June 6, 2013, that "it is imperative that (the TPP) address currency manipulation.to create a level playing field for American businesses and prevent more US jobs from being shipped overseas." The trade promotion authority (TPA) legislation proposed by congressional trade leaders on January 9, 2014, establishes the avoidance of currency manipulation as a "principal US negotiating objective" in its future trade agreements.
  • Topic: Economics, Emerging Markets, International Trade and Finance, Monetary Policy
  • Political Geography: United States
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Mark Twain once wrote an essay about the difficulties of learning what he called "The Awful German Language." Similar barriers to comprehension seem to plague those trying to explain recent German economic performance. By most measures, Germany has the best functioning labor market among large economies in the West, with levels of employment reaching those in the United States at the end of the turbo-charged 1990s. A debate has stirred, however, about whether this success has come with a price—specifically, whether Germany's domestic structural reforms have lowered living standards for Germany's low income workers and worsened income inequality and whether Germany is fortuitously and perhaps selfishly riding a wave of strong foreign demand for German exports.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Markets, Labor Issues
  • Political Geography: United States, Europe, Germany
  • Author: Edwin M. Truman
  • Publication Date: 03-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The vital role played by the International Monetary Fund (IMF) in stabilizing the world economy and financial system is in serious jeopardy. The failure in mid-January by the US Congress to approve IMF reform legislation that had been pending for more than three years did not simply bring to a screeching halt a decade of slow progress reforming the governance of the Fund to make it more representative, legitimate, and therefore effective. Congress's balking on this issue also did substantial, actual damage to the US reputation around the world, as the leaders of many countries called into question Washington's ability to deliver on promises made in international economic agreements.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Reform
  • Political Geography: United States
  • Author: Marcus Noland
  • Publication Date: 04-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In recent years, despite a history of enmity and armed conflict that never really ended after the Korean War more than 60 years ago, South Korea has been a major investor in North Korea, and South Korean firms have employed more than 50,000 North Korean workers. South Korea's stated goal has been to encourage sufficient economic progress by North Korea, emboldening it toward establishing a meaningful basis for reconciliation and, ultimately, national unification. The expectation, or at least the hope, has been to use economic engagement to lessen the North's direct state control over the economy and to encourage the development of a middle class that might demand greater internal opening. The goal, as enunciated by former South Korean President Kim Dae-jung, has also been to foster a rise of interest groups with an enhanced stake in peaceable external relations.
  • Topic: Economics, Human Rights, International Trade and Finance, Bilateral Relations
  • Political Geography: Asia, South Korea, North Korea
  • Author: Joseph E. Gagnon
  • Publication Date: 06-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For the major advanced economies and the world as a whole, insufficient aggregate demand—that is, too little spending—impeded recovery from the Great Recession of 2008-09. By manipulating their currencies to boost their net exports, many countries made a bad situation worse for their trading partners, which saw demand shifted away. The world needs policies that increase total demand rather than policies that fight over the allocation of the existing amount of demand.
  • Topic: Economics, International Trade and Finance, International Monetary Fund
  • Political Geography: Europe, Asia, Switzerland, Singapore
  • Author: Marcus Noland, Cullen S. Hendrix
  • Publication Date: 04-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Myanmar is in the midst of a long and difficult multifaceted transition, involving political liberalization, economic reform, and the resolution of multiple long-standing civil conflicts. The country has a history of ethno-religious conflict and separatism. Civil-military relations are muddy, and business-military-state relations are similarly opaque. An ongoing natural resource boom, and the blessings and curses that come with it, further complicates these developments. Given the country's evident institutional weaknesses, external policy anchors could play a critical role in this transition. Hendrix and Noland address the possible role for such international precommitment mechanisms—in particular, the Extractive Industries Transparency Initiative (EITI)—in Myanmar's growing extractive sector.
  • Topic: Economics, Ethnic Conflict, Governance, Reform
  • Political Geography: Asia, Myanmar
  • Author: Gary Clyde Hufbauer, Cathleen Cimino
  • Publication Date: 07-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Unconventional extraction methods, namely horizontal drilling and fracking, are transforming global energy production, consumption, and trade. Th e extraction of large amounts of oil and gas from shale formations has led to an unprecedented surge of domestic production in the United States. Th e US Department of Energy (DOE) is now processing more than 40 applications from domestic producers to export liquefi ed natural gas (LNG). While experts still disagree about the magnitude and duration of the energy boom, we are at the "dawn of a US oil and gas renaissance" (Houser and Mohan 2014).
  • Topic: Economics, International Trade and Finance, Monetary Policy
  • Political Geography: United States, North America
  • Author: Caroline Freund, Mélise Jaud
  • Publication Date: 04-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The empirical literature on the relationship between democracy and growth has yielded conflicting results. Cross-country studies have failed to identify a significant impact of democracy on growth, while within-country studies have found a strong positive effect of the transition to democracy on growth. We reconcile the conflicting evidence by showing that the positive effect of democratic transitions results from regime change as opposed to democratization. We identify over 100 transitions in the last half-century with various outcomes: to and from democracy, some partial, and some failed. The variety of experiences allows us to compare the growth outcome of democratic transitions with that of other transitions rather than with a no-transition counterfactual. Conditioning on regime change filters out selection effects and shows that transition to democracy yields no growth dividend compared to other types of regime change. We also show that countries that democratize slowly do not gain from regime change. These results suggest that the growth dividend from political transition results from swift regime change rather than from democratization.
  • Topic: International Relations, Democratization, Economics
  • Political Geography: Brazil
  • Author: David G. Blanchflower, David N. F. Bell
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines the amount of slack in the UK labor market and finds the downward adjustments made by the Monetary Policy Committee (MPC) to both unemployment and underemployment invalid. Without evidence to support its assessment of the output gap, the MPC reduces the level of unemployment based on its claim that long-term unemployment does not affect wages. The authors produce evidence to the contrary and present arguments on why the MPC's halving of the level of underemployment in the United Kingdom is inappropriate. Bell and Blanchflower set out arguments on why they believe the level of slack is greater than the MPC calibrates. Consistent with that is the fact that real wages in the United Kingdom continue to fall.
  • Topic: Economics, Markets, Labor Issues
  • Political Geography: United Kingdom, Europe
  • Author: Li-gang Liu
  • Publication Date: 08-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: China's property market has slowed significantly since the first half of 2014, with sharp declines in sales and a buildup in the inventory of new homes. This sharper than expected downturn—which has affected not only second- and third tier smaller cities but also first-tier megacities such as Beijing, Shanghai, Shenzhen, and Guangzhou—contrasts with last year's buoyant sales and double-digit price surge. Compounded by fears of a default in the shadow banking system and the perception of a highly leveraged Chinese economy, the sudden declines in the property sector are being watched closely. Many commentators believe this could be a turning point for the sector, triggering a hard landing of the Chinese economy and even a financial crisis. Over the last decade, China's property sector has become an important pillar for the country's growth as well as the key source for elevated commodity prices. A property market slump would hurt other sectors, as well as drag down resource-rich economies that rely heavily on China to buy their exports.
  • Topic: Economics, Financial Crisis, Urbanization
  • Political Geography: Japan, China, United Nations
  • Author: Anna Gelpern
  • Publication Date: 08-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The escalating crisis in Ukraine has prompted the United States and Europe to impose the toughest economic sanctions against Russia since the end of the Cold War. Continued instability and military conflict in eastern Ukraine are straining Ukrainian finances. Despite a generous international support package, the government faces shrinking revenues, rising costs, and a spike in foreign debt payments over the next two years.
  • Topic: Cold War, Debt, Economics
  • Political Geography: Russia, Ukraine, Asia
  • Author: Edwin M. Truman
  • Publication Date: 08-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve's role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank.
  • Topic: Economics, Foreign Exchange, Financial Crisis
  • Political Geography: United States
  • Author: William R. Cline, Jared Nolan
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper applies time series analysis to distinguish between cyclical and demographic causes of the decline of the labor force participation rate. Some public discussions suggest that the decline of US unemployment from its 2009 peak of 10 percent to about 6 percent by mid-2014 grossly exaggerates recovery because most of the decline reflects the exit of discouraged workers from the labor force. This study finds instead that one-half to two-thirds of the decline in labor force participation by about 3 percentage points from late 2007 to early 2014 is attributable to aging of the population. Although about one-third is found attributable to the lagged influence of high, and especially long-term, unemployment, going forward the potential rebound in the participation rate from recovery is projected to be approximately offset by further aging of the population.
  • Topic: Demographics, Economics, Labor Issues, Population
  • Political Geography: United States
  • Author: Jeffrey J. Schott, Cathleen Cimino
  • Publication Date: 09-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The negotiation of the Trans-Pacific Partnership (TPP), a megaregional agreement to lower barriers to trade and investment and promote economic integration in the Asia-Pacific region, has been a dynamic process with a number of countries joining the talks in midstream. Since negotiations began in March 2010, participation in the TPP talks has expanded several times to include Malaysia (October 2010), Vietnam (December 2010), Canada and Mexico (October 2012), and Japan (July 2013). In November 2013, Korea announced its interest in participating in the TPP and began consulting with the countries involved. The TPP now has 12 participants. Korea is still considering whether to become lucky 13.
  • Topic: Economics, International Trade and Finance, Bilateral Relations
  • Political Geography: Malaysia, Canada, Asia, Vietnam, Korea, Mexico
  • Author: Arvind Subramanian, Kevin Stahler
  • Publication Date: 11-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Prima facie, competitiveness adjustments in the eurozone, based on unit labor cost developments, appear sensible and in line with what the economic analyst might have predicted and the economic doctor might have ordered. But a broader and arguably better—Balassa-Samuelson-Penn (BSP)—framework for analyzing these adjustments paints a very different picture. Taking advantage of the newly released PPP-based estimates of the International Comparison Program (2011), we identify a causal BSP relationship. We apply this framework to computing more appropriate measures of real competitiveness changes in Europe and other advanced economies in the aftermath of the recent global crises. There has been a deterioration, not improvement, in competitiveness in the periphery countries between 2007 and 2013. Second, the pattern of adjustment within the eurozone has been dramatically perverse, with Germany having improved competitiveness by 9 percent and with Greece's having deteriorated by 9 percent. Third, real competitiveness changes are strongly correlated with nominal exchange rate changes, which suggests the importance of having a flexible (and preferably independent) currency for effecting external adjustments. Fourth, internal devaluation—defined as real competitiveness improvements in excess of nominal exchange rate changes—is possible but seems limited in scope and magnitude. Our results are robust to adjusting the BSP framework to take account of the special circumstances of countries experiencing unemployment. Even if we ignore the BSP effect, the broad pattern of limited and lopsided adjustment in the eurozone remains.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Joseph E. Gagnon, Tamim Bayoumi, Christian Saborowski
  • Publication Date: 10-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: We use a cross-country panel framework to analyze the effect of net official flows (chiefly foreign exchange intervention) on current accounts. We find that net official flows have a large but plausible effect on current account balances. The estimated effects are larger with instrumental variables (42 cents to the dollar on average compared with 24 without instruments), reflecting a possible downward bias in regressions without instruments owing to an endogenous response of net official flows to private financial flows. We consistently find larger impacts of net official flows when international capital flows are restricted and smaller impacts when capital is highly mobile. A further result is that there is an important positive effect of lagged net official flows on current accounts that we believe operates through the portfolio balance channel.
  • Topic: Economics, Foreign Exchange, Monetary Policy
  • Author: Roberto Alvarez, José De Gregorio
  • Publication Date: 11-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Latin American performance during the global fi nancial crisis was unprecedented. Many developing and emerging countries successfully weathered the worst crisis since the Great Depression. Was it good luck? Was it good policies? In this paper we compare growth during the Asian and global fi nancial crises and fi nd that a looser monetary policy played an important role in mitigating crisis. We also fi nd that higher private credit, more fi nancial openness, less trade openness, and greater exchange rate intervention worsened economic performance. Our analysis of Latin American countries confi rms that eff ective macroeconomic management was key to good economic performance. Finally, we present evidence from a sample of 31 emerging markets that high terms of trade had a positive impact on resilience.
  • Topic: Economics, Global Recession, Monetary Policy, Financial Crisis
  • Political Geography: Asia, Latin America
  • Author: Avinash D. Persaud
  • Publication Date: 11-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Bailouts and bail-ins of failing financial institutions have been hotly disputed in the global financial crisis of the last five years. At the height of the crisis, several failing banks were bailed out with taxpayer money so they could service their debts, but as public outrage mounts, policymakers are increasingly looking at bailing in these institutions before using taxpayer funds. Bail-ins, also called haircuts, require the troubled institution's creditors to write off some of the debt or agree to a restructuring of the debt, which reduces their holdings. The public has demanded the imposition of these costs on creditors and bond - holders, arguing that if bad lending as well as bad borrowing went unpunished it would be encouraged. Additionally, the yawning fiscal deficits that have followed bailouts have led to unpopular fiscal retrenchment.
  • Topic: Debt, Economics, Markets, Financial Crisis, Reform
  • Political Geography: United States
  • Author: William R. Cline
  • Publication Date: 11-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: This semiannual review finds that most of the major international currencies, including the US dollar, euro, Japanese yen, UK pound sterling, and Chinese renminbi, remain close to their fundamental equilibrium exchange rates (FEERs). The new estimates find this result despite numerous significant exchange rate movements associated with increased volatility in international financial markets at the beginning of the fourth quarter of 2014, and despite a major reduction in the price of oil. The principal cases of exchange rate misalignment continue to be the undervalued currencies of Singapore, Taiwan, and to a lesser extent Sweden and Switzerland, and the overvalued currencies of Turkey, New Zealand, South Africa, and to a lesser extent Australia and Brazil. Even so, the medium-term current account deficit for the United States is already at the outer limit in the FEERs methodology (3 percent of GDP), and if the combination of intensified quantitative easing in Japan and the euro area with the end to quantitative easing in the United States were to cause sizable further appreciation of the dollar, an excessive US imbalance could begin to emerge.
  • Topic: Economics, Foreign Exchange, International Trade and Finance, Monetary Policy
  • Political Geography: Africa, United States, Japan, Turkey, South Africa, Brazil, New Zealand
  • Author: Anders Åslund
  • Publication Date: 11-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Ukraine has experienced a year of unprecedented political, economic, and military turmoil. The combination of Russian military aggression in the east and a legacy of destructive policies leading to pervasive corruption has plunged the country into an existential crisis. The West, meanwhile, has been largely paralyzed with uncertainty over how to assist Ukraine without reviving Cold War hostilities. Yet all is not lost for Ukraine. A tenuous ceasefire, along with the successful elections of President Petro Poroshenko in May and a new parliament in October offer an opportunity for economic reform. If the current ceasefire in the east holds, Ukraine has a great opportunity to break out of its vicious circle of economic underperformance. Yet, the window of opportunity is likely to be brief. The new government will have to act fast and hard on many fronts to succeed.
  • Topic: Conflict Resolution, Security, Economics, Politics
  • Political Geography: Russia, Europe, Ukraine
  • Author: Giang Ho, Paolo Mauro
  • Publication Date: 12-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: With economic growth in advanced economies still lackluster or elusive, much hope for world prosperity rests on projections of continued strength in developing and emerging economies. On average, the economic growth rate in these economies was roughly twice as high—on an unweighted per capita basis—as in the advanced economies during the past decade. According to the forecasts analyzed in this Policy Brief, this superior performance is projected to extend into the next two decades.
  • Topic: Debt, Economics, International Trade and Finance, Political Economy
  • Author: Natalia Aivazova
  • Publication Date: 08-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Five years since the global economic crisis began in 2008, many of the world's advanced economies are still struggling with sluggish growth and high levels of joblessness, especially among younger workers. In June 2013 the European Council expressed concern that “youth unemployment has reached unprecedented levels in several Member States” and called for “urgent action.” Much of the debate in Europe and the United States has focused on fiscal and monetary measures; while macroeconomic policy can address cyclical problems, a wide consensus recognizes the need to address structural challenges. One such challenge is a mismatch between the skills demanded by employers and those available among the population, especially younger workers. This mismatch can be addressed in part through the implementation of apprenticeship programs. The European Council recently concluded that “high quality apprenticeships and work-based learning will be promoted, notably through the European Alliance for Apprenticeships.” However, in the United States, where many are struggling to find jobs after graduating, apprenticeship programs hardly draw government and private-sector resources. Boosting apprenticeships could give both European and US workers the much-needed skills and competitive edge.
  • Topic: Economics, Markets, Labor Issues, Youth Culture
  • Political Geography: United States, Europe
  • Author: Edwin M. Truman, Allie E. Bagnall
  • Publication Date: 08-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The term sovereign wealth fund (SWF) had not been coined a decade ago. By 2007, economists and the financial world were alternatively excited about or alarmed by the growing influence of these institutions, though in fact many of them had been around for decades. Politicians in countries in which the funds invested generally welcomed the additional financial resources from abroad while expressing concern about the motivations of investors and what they feared could be threats to political, economic, and financial security. The general public in the countries in which the funds were based realized at the same time that political leaders were investing large amounts of national wealth at home and abroad with limited disclosure, and they wanted to know more.
  • Topic: Economics, Globalization, International Trade and Finance, Foreign Direct Investment, Sovereign Wealth Funds