Publishing Institution: Peterson Institute for International Economics / Topic: Financial Crisis

1. The IMF should enhance the role of SDRs to strengthen the international monetary system

Author:: Edwin M. Truman
Publication Date:: 12-2022
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: The special drawing right (SDR), issued by the International Monetary Fund (IMF), has the potential to strengthen dramatically the international monetary system. Established in 1969 and allocated twice during its first decade, the SDR was in the institutional closet from 1980 until 2009, when $250 billion in SDRs was allocated to members of the IMF to help address the global financial crisis. In 2021 another $650 billion in SDRs was allocated to help address the coronavirus pandemic. The SDR has proved itself as a crisis instrument. This paper addresses critically the arguments against SDR allocations. It proposes regular annual SDR allocations, along with measures to make the SDR more attractive to critics and measures to build out the SDR system in support of the international monetary system. The paper includes an appendix on the history of the SDR. A second appendix analyzes SDR use following the 2009 and 2021 allocations and finds that contrary to the popular myth, many countries other than low-income members of the IMF benefited directly in multiple ways from those allocations.
Topic:: International Trade and Finance, Financial Crisis, Finance, and IMF
Political Geography:: Global Focus

2. Low inflation bends the Phillips curve around the world: Extended results

Author:: Jami Forbes, Joseph E. Gagnon, and Christopher G. Collins
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper revises and extends PIIE Working Paper 20-6. It continues to find strong support for a Phillips curve that becomes nonlinear when inflation is "low"—which our baseline model defines as less than 3 percent. The nonlinear curve is steep when output is above potential (slack is negative) but flat when output is below potential (slack is positive) so that further increases in economic slack have little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. When inflation is high, the Phillips curve is linear and relatively steep. These results are robust to placing the threshold between the high and low inflation regimes at 2, 3, or 4 percent inflation or for a threshold based on country-specific medians of inflation. In this nonlinear model, international factors play a large role in explaining headline inflation (albeit less so for core inflation), a role that has been increasing since the global financial crisis.
Topic:: Economics, Financial Crisis, Inflation, and Philips Curve
Political Geography:: Global Focus

3. Fiscal resiliency in a deeply uncertain world: The role of semiautonomous discretion

Author:: Peter R. Orszag, Robert E. Rubin, and Joseph E. Stiglitz
Publication Date:: 01-2021
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Orszag, Rubin, and Stiglitz outline a new fiscal framework that they argue would better equip policymakers to face deep uncertainties about future interest rates (which, they say, may not remain low forever), hard-to-predict global shocks, and climate risks. They reject fiscal anchors—simple limits on deficits or debt as a share of GDP that governments adopt to check their spending and borrowing—that have historically guided fiscal policy and believe any attempts to modify such targets for the current period of low interest rates are likely to fail. Instead they propose making the budget respond more automatically to economic distress (through stronger automatic stabilizers) and to long-term fiscal pressures (e.g., embedding adjustment mechanisms in health care and pension programs), as well as creating an infrastructure program and extending debt maturities to insure against interest rate changes. Such a "streamlined dashboard" would then allow policymakers to use discretion as necessary to take any additional actions—either to provide more stimulus during short-term difficulties or to adjust the automatic features themselves—rather than adhering to fiscal targets that may no longer be appropriate when economic conditions change.
Topic:: Financial Crisis, Economy, Fiscal Policy, and Fiscal Deficit
Political Geography:: Global Focus

4. Startups in the United States during the pandemic reflect some dynamism amid job losses

Author:: Simeon Djankov and Eva (Yiwen) Zhang
Publication Date:: 05-2021
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: New business applications have surged in the United States since the start of the COVID-19 pandemic. The growth is driven largely by startups in online retail, transportation, and personal services. Many of these new entrepreneurs are self-employed and were likely laid off and forced into entrepreneurship by necessity. No official data are available yet on the number of businesses destroyed in 2020, because business data for firms that close without entering bankruptcy are lagging. But the authors calculate that firm births may have surpassed firm deaths during the pandemic. While this boom in business entry is a tribute to the adaptability and potential innovative spirit in US capitalism, one should not be overly optimistic about jobs created in this wave of startups. As many of these new startups are by people forced to strike out on their own, the number of jobs created per new firm is even smaller than it was during previous US recessions. And like online businesses started around the last recession (e.g., Uber, Airbnb, and Venmo), some of these new firms may turn out to be major contenders in their sectors, displacing workers employed by their traditional rivals.
Topic:: Science and Technology, Labor Issues, Financial Crisis, and COVID-19
Political Geography:: North America and United States of America

5. Sovereign debt restructuring: The centrality of the IMF's role

Author:: Sean Hagan
Publication Date:: 07-2020
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: Over the past 40 years, the International Monetary Fund (IMF) has played a central role in the sovereign debt restructuring process. If the COVID-19 pandemic leads to a significant wave of sovereign debt distress, this role will be closely scrutinized. The paper analyzes how IMF policies have evolved to shape the incentives of sovereigns and their creditors at each stage of the sovereign debt restructuring process. It also identifies a number of issues that the IMF will likely have to address as a result of the pandemic, including (1) assessment of debt sustainability in a macroeconomic environment of considerable uncertainty, (2) treatment of official bilateral creditors, and (3) potential benefits—and challenges—of introducing additional incentives to maximize creditor participation in any debt restructuring.
Topic:: Debt, Emerging Markets, Government, International Monetary Fund, Financial Crisis, Macroeconomics, and COVID-19
Political Geography:: Global Focus

6. When more delivers less: Comparing the US and French COVID-19 crisis responses

Author:: Jérémie Cohen-Setton and Jean Pisani-Ferry
Publication Date:: 06-2020
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: The US package of measures to help households hit by the economic shock from the COVID-19 crisis, including the Paycheck Protection Program, is almost twice as large in proportion of GDP as the French package, but it has proven less effective in curbing unemployment because of poor design and implementation. In contrast, the increase in the unemployment rate in France has been five times less than the increase in the United States. Cohen-Setton and Pisani-Ferry dive beneath the unreliable headline numbers to assess the effectiveness of government support provided to households in March–May 2020 in the two countries. They conclude that the French approach (mirrored in some other European countries) delivered a bigger bang for the buck. But the fact that the US approach has fallen short should not diminish the significance of the policy shift signaled by the enactment of measures to maintain household income.
Topic:: Education, Financial Crisis, European Union, and COVID-19
Political Geography:: Europe, France, North America, and United States of America

7. A possible IMF Pandemic Support Facility for emerging-market countries

Author:: Matthew Fisher and Adnan Mazarei
Publication Date:: 07-2020
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: As the International Monetary Fund (IMF) adapts its strategy to meet the challenges of the COVID-19 crisis, it should develop a new temporary lending instrument to assist emerging-market countries facing pandemic-related fiscal and balance of payments difficulties. A dedicated IMF Pandemic Support Facility would help meet the exceptional financing needs of emerging-market countries at a time of high uncertainty while providing more lenient repayment periods and also allow the Fund to be more flexible in its operations with minimum disruptions to its existing facilities.
Topic:: Emerging Markets, International Monetary Fund, Financial Crisis, and COVID-19
Political Geography:: Global Focus

8. Lebanon's monetary meltdown tests the limits of central banking

Author:: Patrick Honohan and Adnan Mazarei
Publication Date:: 09-2020
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Lebanon has spent the last 20 years juggling an excessive level of debt and current account deficits. Apparent financial wizardry by the central bank (Banque du Liban) helped keep the exchange rate fixed, inflation low, and debt service flowing until 2020. But these efforts merely postponed the inevitable, at a high cost. Repeated shocks to the Lebanese economy and governance weaknesses pushed the financial contraption over the cliff before the COVID-19 outbreak. The explosion that ripped through the Port of Beirut in early August added to the disarray. The Lebanese pound has crashed, the government has defaulted on some of its debt, and restrictions have been placed on deposit withdrawals and access to foreign exchange. Lebanon faces an uncertain future of uneven suffering. It will need foreign assistance, but such assistance will not extend to covering the losses of the banking system. How the losses are distributed will set the scene for Lebanon’s future development. Policymakers should aim for fairness, predictability, and stability without overindebtedness.
Topic:: Monetary Policy, Financial Crisis, Central Bank, and Banking
Political Geography:: Middle East and Lebanon

9. Sovereign debt relief in the global pandemic: Lessons from the 1980s

Author:: Edwin M. Truman
Publication Date:: 10-2020
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: The coronavirus pandemic and an unprecedented global recession have triggered fears of a debt crisis requiring massive intervention by international financial institutions as well as debt restructuring by private and official creditors. Truman draws two lessons for the current crisis, based on his ring-side experience during the debt crises of the 1980s. First, the initiation of debt relief will require a broad consensus among four groups: the borrowing countries, their foreign creditors, the authorities of the countries in which those creditors are located, and international institutions. Reaching consensus takes time. Second, implementation of the consensus framework will be case by case, because of differences in the political and economic circumstances of each country, which will militate against simple replication for different countries and against implementation all at the same time. Any framework will not be self-implementing. While the call for rapid action is understandable, applying a one-size-fits-all approach will not be possible.
Topic:: Debt, Emerging Markets, History, International Monetary Fund, Financial Crisis, World Bank, and COVID-19
Political Geography:: Global Focus

10. International Coordination of Economic Policies in the Global Financial Crisis: Successes, Failures, and Consequences

Author:: Edwin M. Truman
Publication Date:: 07-2019
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper evaluates international efforts to diagnose the global financial crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded. International coordination of economic policies eventually contributed importantly to containing the crisis, but the authorities failed to agree on a diagnosis and the consequent need for joint action until the case was obvious. The policy actions that were adopted were powerful and effective, but they may have undermined prospects for coordinated responses to future crises.
Topic:: Government, International Cooperation, Financial Crisis, and Economy
Political Geography:: Global Focus

11. Iran Has a Slow Motion Banking Crisis

Author:: Adnan Mazarei
Publication Date:: 06-2019
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Suffering under Western sanctions and security challenges, Iran faces problems as well from its fragile banking system, which has been languishing for decades. Liquidity and solvency weaknesses pose a growing risk to the country’s financial stability. The sanctions reimposed by the United States in 2018 have heightened these vulnerabilities, but the problems also result from the heavy-handed role of the state, corruption, and the Central Bank of Iran’s failure to regulate and supervise the system. Iran’s ability to avoid a run on its banks is aided by their reliance on liquidity assistance, deposit insurance, and regulatory forbearance from the central bank. Depositors are forced to be patient because they have limited options to invest elsewhere. Iran has thus avoided a full-blown banking crisis. But the situation is not sustainable. Banks remain susceptible to external shocks, which could come from a complete halt to oil exports or war.
Topic:: Security, Financial Crisis, Sanctions, Banks, and Financial Institutions
Political Geography:: Iran, Middle East, North America, and United States of America

12. International Coordination of Economic Policies in the Global Financial Crisis: Successes, Failures, and Consequences

Author:: Edwin M. Truman
Publication Date:: 07-2019
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper evaluates international efforts to diagnose the global financial crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded. International coordination of economic policies eventually contributed importantly to containing the crisis, but the authorities failed to agree on a diagnosis and the consequent need for joint action until the case was obvious. The policy actions that were adopted were powerful and effective, but they may have undermined prospects for coordinated responses to future crises.
Topic:: International Affairs, Financial Crisis, Economic Policy, and Fiscal Policy
Political Geography:: Global Focus

13. Keeping Up with the Future: Upgrading Forecasts of Political Instability and Geopolitical Risk

Author:: Cullen S. Hendrix and 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, and Risk
Political Geography:: Global Focus

14. Service Sector Reform in China

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, and Reform
Political Geography:: China

15. : From Rapid Recovery to Slowdown: Why Recent Economic Growth in Latin America Has Been Slow

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, and Financial Crisis
Political Geography:: Latin America

16. Too Much Finance, or Statistical Illusion?

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, and Financial Crisis

17. From Populist Destabilization to Reform and Possible Debt Relief in Greece

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, and Budget
Political Geography:: Greece

18. Inflation and Activity: Two Explorations and Their Monetary Policy Implications

Author:: Olivier Blanchard, Eugenio Cerutti, and 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, and GDP
Political Geography:: Global Focus

19. The Financial Sector and Growth in Emerging Asian Economies

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, and Reform
Political Geography:: Asia

20. Maintaining Financial Stability in the People's Republic of China during Financial Liberalization

Author:: Nicholas Borst and 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, and Reform
Political Geography:: China

21. A Proposed Code to Discipline Local Content Requirements

Author:: Gary Clyde Hufbauer, Jeffrey J. Schott, and 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, and Reform

22. Income Inequality Developments in the Great Recession

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, and Financial Crisis
Political Geography:: United States, United Kingdom, Germany, Spain, Italy, and Ireland

23. Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework

Author:: Arvind Subramanian and 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, and Financial Crisis
Political Geography:: Europe

24. Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and Global Financial Crises

Author:: Roberto Alvarez and 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, and Financial Crisis
Political Geography:: Asia and Latin America

25. Why Bail-In Securities Are Fool's Gold

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, and Reform
Political Geography:: United States

26. Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and Global Financial Crises

Author:: Roberto Alvarez and José De Gregorio
Publication Date:: 11-2014
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Latin American performance during the global financial 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 financial crises and find that a looser monetary policy played an important role in mitigating crisis. We also find that higher private credit, more financial openness, less trade openness, and greater exchange rate intervention worsened economic performance. Our analysis of Latin American countries confirms that effective 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:: Emerging Markets, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:: Asia and Latin America

27. Is China's Property Market Heading toward Collapse?

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, and Urbanization
Political Geography:: Japan, China, and United Nations

28. The Federal Reserve Engages the World (1970–2000): An Insider's Narrative of the Transition to Managed Floating and Financial Turbulence

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, and Financial Crisis
Political Geography:: United States

29. Stabilizing Properties of Flexible Exchange Rates: Evidence from the Global Financial Crisis

Author:: Joseph E. Gagnon
Publication Date:: 11-2013
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: There is a long-standing debate among economists and policymakers on the benefits of flexible versus fixed exchange rates (Klein and Shambaugh 2010). In principle, flexible exchange rates allow a country's central bank to focus on stabilizing economic growth and inflation, which are the ultimate goals of monetary policy. However, some argue that in practice central banks often do not use their powers wisely and it may be better to restrict their freedom by requiring them to peg their currency to that of an important trading partner. Others note that flexible exchange rates are far more volatile than fundamental factors can explain (Flood and Rose 1995), raising the possibility that they may introduce wasteful cross-sectoral fluctuations in economic activity. One common viewpoint is that flexible exchange rates may be fine for large countries but that the smallest countries are better off with fixed exchange rates (Åslund 2010).
Topic:: Economics, Foreign Exchange, International Trade and Finance, Markets, and Financial Crisis
Political Geography:: United States, Japan, China, and United Kingdom

30. Governing the Federal Reserve System after the Dodd-Frank Act

Author:: Simon Johnson and Peter Conti-Brown
Publication Date:: 10-2013
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act increased the powers of the Board of Governors of the Federal Reserve System (hereafter the Board) along almost all dimensions pertaining to the supervision and operation of systemically important financial institutions. With Ben S. Bernanke's term as Fed chair ending in January 2014, much of the public's attention has focused appropriately on the identity, views, and experience of candidates for the successor, whose influence on bank regulation will be considerable. President Barack Obama's selection of current Board vice chair Janet L. Yellen as chair—a highly qualified choice—comes at the end of a long public debate on this nomination.
Topic:: Economics, International Trade and Finance, Financial Crisis, Governance, and Reform

31. Asian and European Financial Crises Compared

Author:: Edwin M. Truman
Publication Date:: 10-2013
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: The European and Asian financial crises are the two most recent major regional crises. This paper compares their origins and evolution. The origins of the two sets of crises were different in some respects, but broadly similar. The two sets of crises also shared similarities in their evolution, but here the differences were more significant. The European crisis countries received more external financial support, despite the fact that they involved more solvency issues while the Asian crises involved more liquidity issues. On balance, the reform programs in the European crises were less demanding and rigorous than in the Asian crises. Partly as a consequence, the negative impacts on the global economy have been larger. I draw three lessons from this analysis: First, history will repeat itself; there will be other external financial crises. Second, other countries have a stake in appropriate crisis management. Third, the IMF and other countries were mistaken in treating the European crises as individual country crises rather than as a crisis for the euro area as a whole that demanded policy conditionality on all members of the euro area.
Topic:: Economics, International Trade and Finance, International Monetary Fund, and Financial Crisis
Political Geography:: Europe and Asia

32. The Greek Debt Restructuring: An Autopsy

Author:: Jeromin Zettelmeyer, Christoph Trebesch, and Mitu Gulati
Publication Date:: 08-2013
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief— over 50 percent of 2012 GDP—with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, created a large risk for European taxpayers, and set precedents—particularly in its very generous treatment of holdout creditors—that are likely to make future debt restructurings in Europe more difficult.
Topic:: Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:: Europe and Greece

33. China's Credit Boom: New Risks Require New Reforms

Author:: Nicholas Borst
Publication Date:: 10-2013
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: The Chinese financial system has undergone almost continuous reform since the dismantling in the 1980s of the Soviet- style system where only one state-controlled bank existed. Government efforts to create a financial system that adheres to international best practices of commercial lending accelerated in the 1990s (box 1). Reforms progressed quickly during this period, but they were accompanied by excessive credit growth and a massive increase in nonperforming loans, threatening the solvency of some banks and the financial stability of the entire economy. The risk of these weaknesses was dramatized by the 1997 Asian financial crisis, in which several nearby countries were crippled by plunging currency values, rising interest rates and difficulties servicing their foreign-held debts.
Topic:: Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:: China

34. Lehman Died, Bagehot Lives: Why Did the Fed and Treasury Let a Major Wall Street Bank Fail?

Author:: William R. Cline and Joseph E. Gagnon
Publication Date:: 09-2013
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Five years after the Federal Reserve and the Treasury allowed the investment bank Lehman Brothers to fail, their actions (or inaction) remain a focus of debate. Some argue that it was an inconsistent policy to have let Lehman fail while making emergency loans to save other large financial institutions in the same time frame. In this Policy Brief we present evidence that the Fed and Treasury had a sound reason to have bailed out other institutions while letting Lehman fail. Simply put, Lehman was insolvent—probably deeply so—whereas the other institutions arguably were solvent. In addition, the other institutions had abundant collateral to pledge, whereas what little collateral Lehman had to pledge was of questionable quality and scattered across many affiliated entities. Thus, federal officials, at least in hindsight, appear to have followed the dictum of Walter Bagehot (cited above), which has guided central banks for almost 150 years.
Topic:: Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:: United States

35. How Can Trade Policy Help America Compete?

Author:: Robert Z. Lawrence
Publication Date:: 10-2012
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: America deserves credit for not having succumbed to the global financial crisis by repeating the protectionist mistakes of the 1930s. Nonetheless, since 2007, although lip service has been paid to boosting US exports, its trade policy accomplishments have been modest. This is unfortunate because active trade policies can promote American living standards and facilitate America's return to full employment and sustained growth. These policies can also help to create a global trade order that advances American interests. This policy brief argues that the United States needs new initiatives that discipline foreign practices, increase access to foreign markets, revitalize the World Trade Organization (WTO), improve the administrative and regulatory environment for trade, and assist workers and communities adversely affected by change.
Topic:: Economics, Globalization, International Trade and Finance, Markets, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:: United States and America

36. The Coming Resolution of the European Crisis: An Update

Author:: C. Fred Bergsten and Jacob Funk Kirkegaard
Publication Date:: 06-2012
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Getting the diagnosis right is a prerequisite for understanding the euro area predicament and evaluating key decisions taken since early 2010. As we laid out in Bergsten and Kirkegaard (2012), while the euro area faces multiple overlapping and mutually reinforcing elements of fiscal (Greece), banking (Ireland/Spain), and competitiveness (Southern periphery) crises, it is first and foremost facing a crisis of institutional design. The common currency as designed in the Maastricht Treaty of 1992 is a half-built house without the critical components of banking and fiscal union necessary to sustain it through the type of crushing economic and financial down- turn witnessed since October 2008.
Topic:: Economics, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:: Europe

37. Southern Europe Ignores Lessons from Latvia at Its Peril

Author:: Anders Åslund
Publication Date:: 06-2012
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: In the current financial crisis plaguing Europe, Latvia stands out for resolving its financial problems quickly and resolutely. After contracting 24 percent in 2008 and 2009, it grew at the rate of 5.5 percent in 2011. The speed and determination. with which the government carried out austerity measures in 2009 and restored confidence after suffering the worst output decline is a crucial lesson for the ailing South European countries—Greece, Italy, Portugal, and Spain. Many policy observers and economists have dismissed Latvia's crisis resolution as irrelevant to the situation in Southern Europe. The Latvian orange, they say, cannot be compared with the South European apples. I argue otherwise.
Topic:: Economics, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:: Europe, Greece, and Latvia

38. Restoring Fiscal Equilibrium in the United States

Author:: William R. Cline
Publication Date:: 06-2012
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Halfway through this presidential election year, there is great uncertainty about how, when, and even whether the United States will restore fiscal sustainability. As shown by the near-default because of the impasse over the debt ceiling in July 2011, the two parties have been in sharp opposition on this issue. The Republicans have insisted that adjustment be accomplished by spending cuts rather than tax increases. Two hundred and thirty eight Republican congressmen and 41 Republican senators have signed the Grover Norquist pledge to oppose any attempt to raise marginal tax rates or reduce deductions without implementing offsetting tax reductions. In contrast, Democratic lawmakers have tended to emphasize the maintenance of social and entitlement programs and expressed a willingness to restore higher tax rates if necessary.
Topic:: Economics, Monetary Policy, Financial Crisis, Governance, and Law
Political Geography:: United States

39. Estimates of Fundamental Equilibrium Exchange Rates, May 2012

Author:: William R. Cline and John Williamson
Publication Date:: 05-2012
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: This Policy Brief updates our estimates of fundamental equilibrium exchange rates (FEERs) to the latest available data. For exchange rates, we apply the average rates of April 2012, while for the International Monetary Fund's balance of payments forecasts, we use the April 2012 issue of the World Economic Outlook (henceforth WEO; see IMF 2012a). This study is the fifth in an annual series, begun in 2008, in which we have used the spring WEO as the basis for drawing out implications for exchange rate changes needed if the world is to approach a reasonably satisfactory medium-run position. In addition, in semiannual updates (most recently in November 2011), we have tracked interim changes in exchange rates but not reestimated the underlying FEERs for the year in question.
Topic:: International Relations, Economics, Foreign Exchange, International Trade and Finance, and Financial Crisis

40. Does Monetary Cooperation or Confrontation Lead to Successful Fiscal Consolidation?

Author:: Adam S. Posen, Tomas Hellebrandt, and Marilyne Tolle
Publication Date:: 04-2012
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Active accommodation of fiscal consolidations by monetary policy is controversial, as can be seen in current euro area discussions. While many observers acknowledge that there is usually a place for monetary accommodation in response to fiscal consolidation, a sequencing argument is often heard today that fiscal commitment must precede any loosening. Some analysts go further to suggest that toughness by central banks taking a hard line on adjustment is critical to inducing sustained fiscal stabilization. This policy brief looks at the recent historical record of central bank behavior vis-à-vis fiscal authorities, at least until the current crisis period, and whether accommodative approaches ahead of consolidations have proven dangerous or helpful. The authors also try to assess the market credibility of fiscal consolidations as a function of the central banks' monetary stance prior to fiscal consolidation. They find clear evidence of positive associations between the degree of monetary ease in advance of fiscal consolidation programs and both those programs' success and their market credibility.
Topic:: Economics, Markets, Monetary Policy, Financial Crisis, and Governance

41. Assessing Potential Inflation Consequences of QE after Financial Crises

Author:: Samuel Reynard
Publication Date:: 11-2012
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: Financial crises have been followed by different inflation paths which are related to monetary policy and money creation by the banking sector during those crises. Accounting for equilibrium changes and non-linearity issues, the empirical relationship between money and subsequent inflation developments has remained stable and similar in crisis and normal times. This analysis can explain why the financial crisis in Argentina in the early 2000s was followed by increasing inflation, whereas Japan experienced deflation in the 1990s and 2000s despite quantitative easing. Current quantitative easing policies should lead to increasing and persistent inflation over the next years.
Topic:: Development, Economics, Emerging Markets, Monetary Policy, and Financial Crisis
Political Geography:: Latin America

42. John Williamson and the Evolution of the International Monetary System

Author:: Edwin M. Truman
Publication Date:: 08-2012
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: Throughout his brilliant career, John Williamson has frequently focused his considerable analytical skills and powers of persuasion on reform of the international monetary system. This paper examines two principal areas of his concern: (1) exchange rates and the adjustment process, and (2) international liquidity, seigniorage, and the stability of the system. With respect to exchange rates, I find that there has been a moderate reduction in variability, but over the past 40 years external imbalances have, if anything, worsened. The adjustment process has malfunctioned. With respect to international liquidity, reserves have expanded rapidly, but their expansion has been demand-determined, has not involved a remonetization of gold or an increase in inflation. I find that concerns about the size and maldistribution of seigniorage are misplaced. Moreover, we are seeing a steady evolution toward a multicurrency international monetary and financial system. However, reserve diversification does not appear to have adversely affected exchange rate volatility to date. I conclude that the principal benefits of the Bretton Woods international monetary system remain and the principal weaknesses remain. But the system is evolving. It could be improved with respect to the adjustment process and the role of the International Monetary Fund as the international lender of last resort.
Topic:: Economics, Foreign Exchange, International Trade and Finance, International Monetary Fund, Monetary Policy, and Financial Crisis

43. Sovereign Debt Sustainability in Italy and Spain: A Probabilistic Approach

Author:: William R. Cline
Publication Date:: 08-2012
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper introduces a new probabilistic approach to sovereign debt projections and presents new estimates of debt ratios through 2020 for Italy and Spain. The new approach takes account of likely correlations across 243 alternative scenarios with three states (good, baseline, bad) for five key variables (growth, interest rate, primary surplus, bank recapitalization, and privatization). The 25th and 75th percentile scenarios are reported, as are the baseline and probability-weighted outcomes. The results suggest sovereign debt is sustainable in both Italy (where debt ratios are likely to decline because of a high primary surplus) and Spain (where the ratios rise but at a decelerating pace and from relatively low levels).
Topic:: Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:: Spain and Italy

44. Lessons from Reforms in Central and Eastern Europe in the Wake of the Global Financial Crisis

Author:: Anders Åslund
Publication Date:: 04-2012
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: The response of the ten new eastern members of the European Union to the global financial crisis has valuable lessons of crisis resolution for the euro area. These countries were severely hit by the crisis in the fall of 2008 and responded with extensive reforms. Crisis made the unthinkable possible. This paper outlines the main reform measures that the ten Central and East European (CEE) countries carried out. It then quantifies to what extent the CEE countries resolved the macroeconomic crisis and explores the effects of the reforms on future growth prospects. The fourth and major section discusses how the political economy of the crisis resolution actually worked. Finally, the author examines what lessons euro area countries can learn from the crisis resolution of the newest members of the European Union.
Topic:: Debt, Economics, International Trade and Finance, Markets, Political Economy, and Financial Crisis
Political Geography:: Europe

45. Financial Reform after the Crisis: An Early Assessment

Author:: Nicolas Véron
Publication Date:: 01-2012
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper aims to take stock of global efforts towards financial reform since the start of the financial crisis in 2007–08, and to provide a synthetic (if simplified) picture of their status as of January 2012. Underlying dynamics are described and analyzed both at the global level (particularly G-20, IMF, and FSB) and in individual jurisdictions, as well as the impact the crisis has had on these regions. The possible next steps of financial reform are then reviewed, including: the ongoing crisis management in Europe, the new emphasis on macroprudential approaches, the challenges posed by globally integrated financial firms, the implementation of harmonized global standards, and the links between financial systems and growth.
Topic:: Economics, International Trade and Finance, Markets, Global Recession, and Financial Crisis
Political Geography:: Europe

46. Fiscal Federalism: US History for Architects of Europe's Fiscal Union

Author:: C. Randall Henning and Martin Kessler
Publication Date:: 01-2012
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: European debates over reform of the fiscal governance of the euro area frequently reference fiscal federalism in the United States. The “fiscal compact” agreed by the European Council during 2011 provided for the introduction of, among other things, constitutional rules or framework laws known as “debt brakes” in the member states of the euro area. In light of the compact and proposals for deeper fiscal union, we review US fiscal federalism from Alexander Hamilton to the present. We note that within the US system the states are “sovereign”: The federal government does not mandate balanced budgets nor, since the 1840s, does it bail out states in fiscal trouble. States adopted balanced budget rules of varying strength during the nineteenth century and these rules limit debt accumulation. Before introducing debt brakes for euro area member states, however, Europeans should consider three important caveats. First, debt brakes are likely to be more durable and effective when “owned” locally rather than mandated centrally. Second, maintaining a capacity for countercyclical macroeconomic stabilization is essential. Balanced budget rules have been viable in the US states because the federal government has a broad set of fiscal powers, including countercyclical fiscal action. Finally, because debt brakes threaten to collide with bank rescues, the euro area should unify bank regulation and create a common fiscal pool for restructuring the banking system.
Topic:: Debt, Financial Crisis, and Governance
Political Geography:: United States and Europe

47. The Coming Resolution of the European Crisis

Author:: C. Fred Bergsten and Jacob Funk Kirkegaard
Publication Date:: 01-2012
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Doom and gloom about the euro abounds. An increasing number of commentators and economists, including here at the Peterson Institute, have begun to question whether the common currency can survive.
Topic:: Economics, International Trade and Finance, Political Economy, Regional Cooperation, and Financial Crisis
Political Geography:: Europe

48. Interest Rate Shock and Sustainability of Italy's Sovereign Debt

Author:: William R. Cline
Publication Date:: 02-2012
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Contagion from Greece, together with domestic political uncertainty in Italy, caused interest rates on Italian sovereign debt to spike in the second half of 2011. As shown in figure 1, the risk spread above German bunds for 10-year Italian government bonds rose from 200 basis points in early July 2011, to a range of 300 to 400 basis points after the July 21 Greek package with its new emphasis on private sector involvement. There was a second surge to the 400 to 500 basis point range in November through January, following the October 27 Greek package that insisted on a 50 percent reduction in private sector claims.
Topic:: Debt, Economics, and Financial Crisis
Political Geography:: Europe, Germany, and Italy

49. Global Imbalances and Foreign Asset Expansion by Developing Economy Central Banks

Author:: Joseph E. Gagnon
Publication Date:: 03-2012
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: Over the past 10 years, central banks and governments throughout the developing world have accumulated foreign exchange reserves and other official assets at an unprecedented rate. This paper shows that this official asset accumulation has driven a substantial portion of the recent large global current account imbalances. These net official capital flows have become large relative to the size of the industrial economies, and they are a significant factor contributing to the weakness of the economic recovery in the major industrial economies.
Topic:: Development, Economics, Emerging Markets, Globalization, Markets, Monetary Policy, and Financial Crisis

50. Coordinating Regional and Multilateral Financial Institutions

Author:: C. Randall Henning
Publication Date:: 03-2011
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: Recent crises and the expansion of international financial arrangements have dramatically elevated the importance of cooperation between regional institutions and the International Monetary Fund (IMF). While the case for coordination between regional and multilateral institutions is generally accepted, however, the need to organize it on an ex ante basis is not fully appreciated. The relatively successful cooperation among the European Commission, European Central Bank, and IMF on the European debt crisis is not likely to be easily replicated in joint programs for countries in other regions, moreover, and the costs of coordination failure could be very large. Recent innovations at the IMF, on the other hand, present opportunities for cooperation with regional facilities. Henning reviews (1) the case for organizing cooperation on an ex ante basis, (2) the policy and institutional matters that should be coordinated, (3) how East Asian arrangements in particular and the IMF might cooperate, and (4) an Interinstitutional Agenda of general principles, modalities, and institutional recommendations. The G-20, member states, and institutions themselves should address this agenda proactively.
Topic:: Debt, Economics, Regional Cooperation, International Monetary Fund, and Financial Crisis
Political Geography:: Europe and East Asia

51. Europe on the Brink

Author:: Simon Johnson and Peter Boone
Publication Date:: 07-2011
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Attempts to resolve the problems in Europe are failing, and the crisis is spreading from Greece, Ireland, and Portugal to larger nations. Europe's financial system relies on moral hazard, i.e., a “no defaults” policy, to attract the funding needed to roll over large amounts of short–term bank and sovereign debt. Now that politicians in creditor nations are calling for private sector burden sharing, investors are demanding higher interest rates to hold these debts. But higher rates may tip banks and nations toward bankruptcy. Europe's banks and financial system are highly integrated across countries. Rising expectations of default in some countries could lead to large-scale capital flight into “safe” countries. This shift will raise concerns regarding solvency and liquidity of many financial institutions. The payments system of the euro area is serving as an opaque bailout mechanism that is currently preventing the euro area from falling apart at this time. If the number of nations in trouble spreads beyond Greece, Ireland, and Portugal, this bailout system will be stressed because of the potential size of accumulated funding. The European Central Bank (ECB) could soon see a vocal debate between inflationist and hawkish (anti–inflation) members. Inflationists will call for large–scale interventions, including bond buybacks and emergency loans, while the hawks will attempt to close loopholes in the payments system that effectively permit each troubled nation to create money needed to finance capital flight and budget deficits. At this stage in the debate, we see little chance that Europe can avoid ending the “moral hazard” regime, in which case it needs to plan for widespread sovereign and bank debt restructurings.
Topic:: Debt, Economics, Regional Cooperation, and Financial Crisis
Political Geography:: Europe, Greece, and Ireland

52. US Tax Discrimination Against Large Corporations Should Be Discarded

Author:: Gary Clyde Hufbauer and Martin Vieiro
Publication Date:: 10-2011
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: The United States holds contradictory views about large corporations. When Americans speak of breakthroughs in research and engineering, they are justly proud of large firms that pioneered railroads and steam engines in the 19th century, automobiles, electric power, and oil exploration in the 20th century, and computers, software, and biotechnology in the 21st century. Yet when talk turns to paying taxes, public opinion holds that large corporations should pay a higher statutory tax rate than other business firms, and enjoy fewer deductions in computing their taxable income. Despite common sense and the teachings of economics, tax discrimination is alive and well.
Topic:: Economics, Globalization, International Trade and Finance, Markets, and Financial Crisis
Political Geography:: United States and America

53. Sustainability of Greek Public Debt

Author:: William R. Cline
Publication Date:: 10-2011
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: On July 21, 2011, the heads of government of the euro area announced a new plan to address the Greek debt crisis. This policy brief presents a simulation exercise that examines whether the new arrangements are likely to provide a sustainable solution. The analysis focuses on four key measures: gross debt relative to GDP; net debt relative to GDP; net interest payments relative to GDP; and amortization of medium-and long-term debt coming due during the year in question, relative to GDP. The new Greek package shows prospective future progress on all four measures, and Greek debt looks much more sustainable after the package than before. Debt also appears considerably more manageable if the criterion is net debt or interest burden rather than gross debt ratio, although even for gross debt the ratio is down substantially by 2020. It also becomes clear that the major contribution of the private-sector involvement (PSI) part of the package is in the form of sharply cutting amortization due, although by avoiding large new borrowing at crisis-level interest rates it also alleviates the interest burden that would otherwise occur.
Topic:: Debt, Economics, Regional Cooperation, and Financial Crisis
Political Geography:: Europe and Greece

54. Integrating Reform of Financial Regulation with Reform of the International Monetary System

Author:: Morris Goldstein
Publication Date:: 02-2011
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper links reform of the international financial regulatory system with reform of the international monetary system because as this recent global crisis demonstrates so vividly, the root causes can come from both the financial and monetary spheres and they can interact in variety of dangerous ways. On the financial regulatory side, I highlight three problems: developing a better tool kit for pricking asset-price bubbles before they get too large; shooting for national minima for regulatory bank capital that are at least twice as high those recently agreed as part of Basel III; and implementing a comprehensive approach to "too-big-to-fail" financial institutions that will rein-in their past excessive risk-taking. On the international monetary side, I emphasize what needs to be done to discourage "beggar-thy-neighbor" exchange rate policies, including agreeing on a graduated set of penalties for countries that refuse persistently to honor their international obligations on exchange rate policy.
Topic:: Economics, International Trade and Finance, Monetary Policy, and Financial Crisis

55. Lessons from the East European Financial Crisis, 2008-10

Author:: Anders Åslund
Publication Date:: 06-2011
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: In the fall of 2008, Central and Eastern Europe became a flashpoint in the global financial crisis. The ten new eastern members of the European Union were in a state of severe overheating in all regards. Inflation surged everywhere and to double digits in Bulgaria, Estonia, Latvia, and Lithuania. Wages and real estate prices skyrocketed, rendering these countries ever less competitive, which further undermined their current account balance. Output plunged and unemployment soared.
Topic:: Economics, Global Recession, and Financial Crisis
Political Geography:: Europe, Lithuania, Estonia, Bulgaria, and Latvia

56. The Outlook for International Monetary System Reform in 2011: A Preliminary Report Card

Author:: Edwin M. Truman
Publication Date:: 05-2011
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Reform of the international monetary system was placed on the agenda of the Group of 20 (G-20) a year ago at the initiative of the incoming French leadership of the G-20. On November 4, 2011 in Cannes, France, the G-20 leaders will announce their conclusions and agreements after a year and half of intense dialogue and debate. This policy brief summarizes my preliminary rating of the expected results based on the evidence to date: a barely passing grade on substance but an A for effort. Neither final grade is locked in stone, however.
Topic:: Economics, International Cooperation, International Trade and Finance, International Monetary Fund, Monetary Policy, and Financial Crisis
Political Geography:: France

57. Corporate Tax Reform for a New Century

Author:: Gary Clyde Hufbauer and Woan Foong Wong
Publication Date:: 04-2011
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: In his State of the Union address, President Barack Obama stressed four ingredients of American prosperity: faster innovation, better education, less deficit, and more jobs. As the president recognized in his address, the US free enterprise system drives the private sector to innovate, invest, and create jobs. This policy brief concentrates on how reforming the corporate tax system can strengthen the private sector, thereby spurring both innovation and job.
Topic:: Economics, Globalization, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:: United States

58. Oil Exporters to the Euro's Rescue?

Author:: Philip K. Verleger
Publication Date:: 12-2011
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: When a boat springs a leak far from shore, it is customary for all hands to man the pumps—be they friends or enemies, passengers or crew. Every individual's survival depends on the actions of his or her compatriots. So it is with the global economy today.
Topic:: Debt, Markets, Oil, International Monetary Fund, and Financial Crisis
Political Geography:: Europe

59. Foreign Direct Investment in Times of Crisis

Author:: Gary Clyde Hufbauer and Lauge Skovgaard Poulsen
Publication Date:: 02-2011
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper compares the current foreign direct investment (FDI) recession with FDI responses to past economic crises. The authors find that although developed country outflows have taken an equally big hit as major developed countries have after past crises, outflows seem to be bouncing back more slowly this time. By contrast with the overall decline in recent years, inflows to emerging markets often remained stable during their past economic crises. Both patterns indicate that the global scale of the current crisis has led to a greater FDI response than after individual country crises in the past. Compared with global economic downturns since the 1970s, the current FDI recession has also been greater in magnitude. The exception is the FDI plunge in the early 2000s, despite the much smaller economic crisis at the time. The authors conclude by recommending that policymakers not just further liberalize FDI regimes—as they find was the typical pattern during earlier crises—but rather use the downturn to rethink their FDI policies with an enhanced focus on "sustainable FDI" promotion.
Topic:: Globalization, Global Recession, Foreign Direct Investment, and Financial Crisis

60. Too Big to Fail: The Transatlantic Debate

Author:: Morris Goldstein and Nicolas Véron
Publication Date:: 01-2011
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by "too big to fail" financial institutions. They identify variations in historical experiences, financial system structures, and political institutions that help one understand the differences of approaches between the United States, EU member states, and the EU institutions in addressing this problem. The authors then turn to possible remedies and how they may be differentially implemented in America and Europe. They conclude on which policy developments are likely in the near future.
Topic:: Economics and Financial Crisis
Political Geography:: United States, America, and Europe

61. Confronting Asset Bubbles, Too Big to Fail, and Beggar-thy- Neighbor Exchange Rate Policies

Author:: Morris Goldstein
Publication Date:: 02-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: When pondering desirable reforms, I prefer to think about both the international financial system and the international monetary system because as this global crisis demonstrates so vividly, the root causes can come from both the financial and the monetary spheres and they can interact in a variety of ways. On the financial side, I want to emphasize two problems: pricking asset price bubbles before they get too large, and confronting “too big to fail.” On the monetary side, I want to concentrate on what can be done to discourage “beggar-thyneighbor” exchange rate policies.
Topic:: Economics, Monetary Policy, and Financial Crisis

62. The Sustainability of China's Recovery from the Global Recession

Author:: Nicholas R. Lardy
Publication Date:: 03-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: China's policy response to the global financial and economic crisis was early, large, and well-designed. Although Chinese financial institutions had little exposure to the toxic financial assets that brought down many large Western investment banks and other financial firms, China's leadership recognized that its dependence on exports meant that it was acutely vulnerable to a global recession. Thus they did not subscribe to the view sometimes described as “decoupling,” the idea that Asian countries could passively weather the financial storm that originated in the United States and other advanced industrial economies. They understood that absent a vigorous policy response China inevitably would suffer from the backwash of a sharp economic slowdown in its largest export markets—the United States and Europe.
Topic:: Economics and Financial Crisis
Political Geography:: United States, China, Europe, and Asia

63. The Realities and Relevance of Japan's Great Recession: Neither Ran nor Rashomon

Author:: Adam S. Posen
Publication Date:: 06-2010
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: Japan's Great Recession was the result of a series of macroeconomic and financial policy mistakes. Thus, it was largely avoidable once the initial shock from the bubble bursting had passed. The aberration in Japan's recession was not the behaviour of growth, which is best seen as a series of recoveries aborted by policy errors. Rather, the surprise was the persistent steadiness of limited deflation, even after recovery took place. This is a more fundamental challenge to our basic macroeconomic understanding than is commonly recognized. The UK and US economies are at low risk of having recurrent recessions through macroeconomic policy mistakes—but deflation itself cannot be ruled out. The United Kingdom worryingly combines a couple of financial parallels to Japan with far less room for fiscal action to compensate for them than Japan had. Also, Japan did not face poor prospects for external demand and the need to reallocate productive resources across export sectors during its Great Recession. Many economies do now face this challenge simultaneously, which may limit the pace of, and their share in, the global recovery.
Topic:: Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:: United States, Japan, and United Kingdom

64. Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach

Author:: Olivier Jeanne and Anton Korinek
Publication Date:: 05-2010
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper analyzes prudential controls on capital flows to emerging markets from the perspective of a Pigouvian tax that addresses externalities associated with the deleveraging cycle. It presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts. This mitigates the feedback effects of deleveraging episodes, when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects. In our model, capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare.
Topic:: Economics, Emerging Markets, International Trade and Finance, Foreign Direct Investment, and Financial Crisis

65. In Defense of Europe's Grand Bargain

Author:: Jacob Funk Kirkegaard
Publication Date:: 06-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Nothing is easier than pointing fingers at policymakers woring feverishly at 2 a.m. to contain a rapidly spreading financial crisis. Rarely has this been truer for the European Union than during the current crisis's amateurish policy management. Yet, what really matters is the final result, which is far more postive for Europe than the ugly sausage-making process.
Topic:: Economics, International Trade and Finance, and Financial Crisis
Political Geography:: Europe

66. Protection by Stealth: Using the Tax Law to Discriminate against Foreign Insurance Companies

Author:: Gary Clyde Hufbauer
Publication Date:: 04-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: These are difficult times. Not only are 10 percent of Americans unemployed but the federal budget is out of whack thanks to the specter of rising entitlement outlays. A natural impulse in difficult times is to protect domestic products and domestic producers. The tone of political economy during the global recession of 2007–09 is no different from that in past recessions—but louder because the economic damage is more severe. Emblematic of this spirit is a proposal to discriminate against foreign-owned insurance companies, using the tax code.
Topic:: Economics, Labor Issues, and Financial Crisis
Political Geography:: United States

67. An Update on EU Financial Reforms

Author:: Nicolas Véron
Publication Date:: 12-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: In the context of a transatlantic comparison, the first thing to be mentioned is the difference between the time sequence of financial reforms in the European Union and its equivalent in the United States. The financial crisis started simultaneously on both sides of the Atlantic, with the initial disruption of some financial market segments in August 2007 and the major panic episode of September through October 2008. But they are not at the same stage of policy reaction and especially regulatory reform now. At least four reasons can be identified for this difference.
Topic:: Economics, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:: United States and Europe

68. Strengthening IMF Surveillance: A Comprehensive Proposal

Author:: Edwin M. Truman
Publication Date:: 12-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: The central challenge facing the global economy and financial system today is the failure of countries to limit the negative effects of their policies on other countries and on global economic and financial stability. The most prominent manifestations of this challenge are the balance-of-payments adjustment process and the notorious asymmetry therein, spillovers from other countries' financial-sector policies such as those involved in the crisis of 2007–10, and the prospect of sustained unbalanced growth in the global economy with some countries overheating and others facing substantial excess capacity. Against this background, I propose an approach to strengthened IMF surveillance over the economic and financial policies of its member countries.
Topic:: Economics, Globalization, International Monetary Fund, Monetary Policy, and Financial Crisis

69. How Europe Can Muddle Through Its Crisis

Author:: Jacob Funk Kirkegaard
Publication Date:: 12-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: As Europe's financial market contagion spreads to systemically important eurozone members, the region is echoing with "end-game scenarios" (Johnson and Boone 2010) and demands for major new steps by European policymakers (Financial Times 2010). Among these would be a European "fiscal transfer union," a new common eurozone bond, action by the European Central Bank (ECB) to monetize sovereign debts, and finally a eurozone breakup itself.
Topic:: Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:: Europe

70. Reform of the Global Financial Architecture

Author:: Edwin M. Truman and Garry J. Schinasi
Publication Date:: 10-2010
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper examines the implications of the global financial crisis of 2007–10 for reform of the global financial architecture, in particular the International Monetary Fund and the Financial Stability Board and their interaction. These two institutions are not fully comparable, but they must work more closely in the future to help prevent global financial crises. To this end, the paper identifies institutional and substantive reforms separately and in their joint work that would be desirable and appropriate.
Topic:: Economics, International Cooperation, International Political Economy, Global Recession, Monetary Policy, and Financial Crisis

71. The G-20 and International Financial Institution Governance

Author:: Edwin M. Truman
Publication Date:: 09-2010
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper addresses the agenda for the Group of Twenty (G-20) leaders' meeting in Seoul, Korea in November 2010. This is an opportunity and challenge for Asian leaders in particular. Their test will be, first, to demonstrate that they can responsibly advance economic recovery. They must also deliver on institutional reform, in particular of the International Monetary Fund (IMF). I advocate a substantial expansion of the IMF's role as lender of last resort that is integrated with the surveillance role of the IMF in the form of comprehensive prequalification for IMF assistance and policy advice and a substantial increase in the IMF's financial resources. I also propose an approach to meaningful reform of the distribution of IMF quotas along with limiting European seats on the IMF executive board.
Topic:: Economics, Emerging Markets, Global Recession, Financial Crisis, and Governance
Political Geography:: China, Israel, Asia, and Korea

72. Managing Credit Booms and Busts: A Pigouvian Taxation Approach

Author:: Olivier Jeanne and Anton Korinek
Publication Date:: 09-2010
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: We study a dynamic model in which the interaction between debt accumulation and asset prices magnifies credit booms and busts. We find that borrowers do not internalize these feedback effects and therefore suffer from excessively large booms and busts in both credit flows and asset prices. We show that a Pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare. We calibrate the model with reference to (1) the US small and medium-sized enterprise sector and (2) the household sector and find the optimal tax to be countercy - clical in both cases, dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms.
Topic:: Debt, Economics, Global Recession, and Financial Crisis
Political Geography:: United States

73. Will It Be Brussels, Berlin, or Financial Markets that Check Moral Hazard in Europe's Bailout Union? Most Likely the Latter!

Author:: Jacob Funk Kirkegaard
Publication Date:: 10-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: So far so good for the European Union in preventing the Greek sovereign debt crisis from spiraling out of control in the short term. But with Greece in May 2010 requiring an unprecedented bailout from the European Union/IMF to avoid immediate default and 25 of the European Union's 27 member states currently subject to an “excessive deficit procedure” (European Commission 2010i), it remains evident that the European Union's existing fiscal surveillance framework patently failed both before and during the Great Recession and that Europe's leaders must head back to the drawing board for a required long term reform of the EU fiscal policy and surveillance framework.
Topic:: Debt, Economics, and Financial Crisis
Political Geography:: Europe and Greece

74. The Central Banker's Case for Doing More

Author:: Adam S. Posen
Publication Date:: 10-2010
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: In this policy brief I present my view on the role of monetary policy in our recovery and whether the major central banks in the United Kingdom and beyond should be doing more in the coming months. Of course, every central bank's policysetting committee has to make its own assessment of the right policy measures for its economy, based on its own forecastand the mandate legally set for it. Thus, I am not presuming to offer a “one size fits all” prescription for central bankers beyond the United Kingdom. I would like, however, to try to give some general assessment of the common challenges we face, and what I believe to be the appropriate monetary policy response, barring special circumstances. Not that there will be any doubt about it, but for the record, these are solely my own personal views.
Topic:: Economics, Globalization, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:: United Kingdom

75. Sovereign Bankruptcy in the European Union in the Comparative Perspective

Author:: Leszek Balcerowicz
Publication Date:: 12-2010
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper distinguishes four alternative sovereign debt resolution mechanisms: pure market solutions, modified market solutions, crisis lending by the IMF and other institutions, and the proposed Sovereign Debt Restructuring Mechanism (SDRM). It is hard to find—at the general level of analysis—the unique advantages of SDRM. The assessment of the European Stabilization Mechanism will ultimately depend on its operation, especially whether it will be a tool of subsidizing countries in debt distress or an instrument of fiscal crisis lending. The present fiscal problems in the eurozone are due to the erosion of fiscal discipline and not to the lack of strong compensatory transfers within the eurozone. The right model to look at the conditions for the stability of the eurozone is not a single state but the gold standard–type system, a system of sovereign states with a (de facto) single currency. Based on this analogy and considering modern developments, three types of measures are needed to safeguard the stability of the eurozone: (1) measures that would reduce the procyclicality of the macroeconomic policies and of the economy; (2) reforms that would help the eurozone economies grow out of increased public debt; and (3) steps to increase the flexibility of the economy so that it can deal with the future shocks in a better way.
Topic:: Debt, Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:: Europe

76. US Interests and the International Monetary Fund

Author:: C. Randall Henning
Publication Date:: 06-2009
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: The United States Congress is now considering whether to raise US commitments to the International Monetary Fund (IMF). A positive decision would ratify President Obama's pledge in early April, taken with the other leaders of the G-20, to bolster the IMF as part of their cooperative response to the global economic crisis. The package of measures advanced by the G-20 leaders would triple the resources available to the Fund to $750 billion and would greatly reinforce its role in the international financial system. However, the IMF remains a controversial institution and congressional support cannot be taken for granted.
Topic:: Debt, Monetary Policy, and Financial Crisis
Political Geography:: United States

77. Mortgage Loan Modifications: Program Incentives and Restructuring Design

Author:: Dan Magder
Publication Date:: 11-2009
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: Mortgage defaults and home foreclosures remain a growing problem that undermines the nascent US economic recovery. Delinquencies continue to skyrocket, up 300 percent since the beginning of the crisis, and the contagion has spread to prime loans where delinquencies have risen to over 11 percent of outstanding loans. The resulting foreclosures have broad consequences: Individuals lose their homes, banks take losses on the loans, neighbors suffer as area prices go down, and localities lose on property taxes. The economics of modifying loans to avoid defaults appear strong: Lenders lose an average of $145,000 during a foreclosure compared with less than $24,000 on a modified loan. Yet the track record of modification programs has been surprisingly poor. Potential lawsuits over modifying loans in securitization trusts may be a less important obstacle than many claim. More significant are misaligned incentives that put mortgage servicers in opposition to both investors and borrowers, conflicts between investors holding different tranches of mortgage-backed securities (MBS), operational impediments, and problems in loan modification design that contribute to redefaults. Policymakers should improve reporting metrics to highlight servicers' conflicts of interest, shift the emphasis of loan modifications from short-term fixes to making the new loans more sustainable, and use government resources to drive operational/capacity improvements in the industry.
Topic:: Economics, Markets, and Financial Crisis

78. The Impact of the Financial Crisis on Emerging Asia

Author:: Morris Goldstein and Daniel Xie
Publication Date:: 11-2009
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper analyzes how the global financial crisis has affected emerging Asia and identifies key characteristics that have made these economies more or less vulnerable to a transmission of crises from the advanced economies. After reviewing how economic outcomes in emerging Asia have evolved since the crisis began in the summer of 2007, we review several studies of the effect of financial stress and/or growth slowdown in advanced economies on emerging Asia. We then discuss how emerging Asia is “different” in ways that matter for the contagion of crises, with the emphasis on currency and maturity mismatches, the nature of the region's foreign trade links (product composition, the geographic pattern of trade, and the degree of net export-led growth), financial market integration with the advanced economies, and the scope for implementing countercyclical monetary and fiscal stimulus.
Topic:: Economics and Financial Crisis
Political Geography:: Asia

79. American Multinationals and American Economic Interests: New Dimensions to an Old Debate

Author:: Theodore H. Moran
Publication Date:: 07-2009
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: The 2008 election rekindled debate about whether US multinationals shift technology across borders and relocate production in ways that might harm workers and communities at home. President Obama now pledges to end tax breaks for corporations that ship jobs overseas. The preoccupation about the behavior of American multinationals takes three forms: (1) that US-based multinational corporations may follow a strategy that leads them to abandon the home economy, leaving the workers and communities to cope on their own with few appealing alternatives after the multinationals have left; (2) worse, that US-based multinational corporations may not just abandon home sites but drain off capital, substitute production abroad for exports, and “hollow out” the domestic economy in a zero-sum process that damages those left behind; and (3) worst, that US-based multinational corporations may deploy a rent-gathering apparatus that switches from sharing supranormal profits and externalities with US workers and communities to extracting rents from the United States. Each of these concerns contains a hypothetical outcome that can be compared with contemporary evidence from the United States and other home countries.
Topic:: Economics, International Political Economy, International Trade and Finance, Markets, and Financial Crisis
Political Geography:: United States and America

80. The Future of the Chiang Mai Initiative: An Asian Monetary Fund?

Author:: C. Randall Henning
Publication Date:: 02-2009
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: In September 1997, at the outset of the last global financial crisis, the Japanese Ministry of Finance proposed the creation of an Asian Monetary Fund. Although this particular proposal was scuttled, the idea of a common regional fund on which East Asian governments might draw in times of financial turmoil survives. The region's disaffection from the International Monetary Fund (IMF), stemming from the 1997–98 crisis, sustains this idea and a desire on the part of individual countries to self-insure with large holdings of foreign exchange reserves. East Asian governments and central banks have created a set of bilateral swap arrangements (BSAs) dubbed the Chiang Mai Initiative (CMI) and are negotiating among themselves to build these BSAs into a more comprehensive facility. Some Asian officials hope that such a facility could underpin exchange rate cooperation and monetary integration in the region, although such proposals remain for the moment long-term visions.
Topic:: Economics, International Cooperation, International Trade and Finance, Regional Cooperation, and Financial Crisis
Political Geography:: Japan, Israel, and Asia

81. Money for the Auto Industry: Consistent with WTO Rules?

Author:: Gary Clyde Hufbauer and Claire Brunel
Publication Date:: 02-2009
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: As the financial crisis threatens to lead to a depression, the woes of the automobile industry are second only to the distress of the financial sector. Employment in the US auto industry dropped 9 percent between 2007 and 2008, with much more to follow in 2009. Overall, US auto sales dropped 18 percent between 2007 and 2008, and sales of SUVs plunged 44 percent on a year-over-year basis. Since some sort of financing is required for 90 percent of US car sales, the global credit freeze hit the auto industry with a second blow.
Topic:: Economics, International Political Economy, International Trade and Finance, Poverty, and Financial Crisis
Political Geography:: United States

82. US Taxation of Multinational Corporations: What Makes Sense, What Doesn't

Author:: Gary Clyde Hufbauer and Jisun Kim
Publication Date:: 03-2009
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: As the administration and Congress catch their breath from rescuing the economy, their thoughts are quickly turning to other issues—including the structure of the US tax system. Everyone agrees that the US tax system inflicts enormous complexity on the American public. But reform is never easy. Who pays the tax burden ranks among the most contentious issues that Congress has historically faced, and this time around will be no different.
Topic:: Economics, International Trade and Finance, and Financial Crisis
Political Geography:: United States

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