April 25, 2013
Measuring Financial Openness
Chinn-Ito Index Updated to 2011
April 23, 2013
Guest Contribution: "Fairness and Sustainability for Cyprus"
Today, we have a guest contribution from Marios Zachariadis, Associate Professor of Economics at University of Cyprus.
April 15, 2013
"Rethinking Macro Policy II: First Steps and Early Lessons"
That's the title of an IMF conference taking place starting tomorrow (April 16-17). The program is below, and the live webcast will be available here (and follows up on a 2011 conference on the same subject).
Five years into the crisis, the contours of the macroeconomic policy of the future are only slowly coming into focus. From macroeconomic to financial stability, policy makers have realized that they have to watch many targets. They have also realized that they have potentially many more instruments at their disposal, from macro prudential tools to unconventional monetary policy. But how to map instruments to targets remains very much a work in progress. -- Olivier Blanchard
April 11, 2013
Some New Estimates of Japanese Trade Elasticities
One component of Abenomics is a vigorously expansionary monetary policy. The yen has depreciated substantially as a consequence -- as of February, about 20% relative to 2012Q3. One question is how much of an expenditure switching effect this depreciation will induce. In order to examine this question, I have done some quick and dirty econometrics, summarized in this paper.
April 07, 2013
Currency Wars vs. Currency Spillovers
From Steven Englander (Citibank), “Currency war, BoJ Style” (4/7, not online):
Japan is likely to be labeled as a currency warrior by major Asian trading partners. However, the new BoJ policy has been endorsed by the Fed and IMF and is very G7 compliant, so the BoJ has cover for its policy agenda, despite the aggressiveness of its balance sheet expansion and negative implications for JPY.
April 04, 2013
The BoJ’s Kuroda Acts
April 02, 2013
Teaching Mundell-Fleming, Interest Rate Parity, and the LM Curve
Simon Wren-Lewis’s post has sparked vigorous discussion   (and rejoinder) of whether the teaching of Mundell-Fleming, omitting uncovered interest parity, to our undergraduate students is defensible. In addition, he wonders whether it makes sense to use an LM curve, given the absence of a stable money demand curve, and the fact that most advanced country central banks target a policy rate. I think these are good questions for teachers, as well as those who provide advice regarding policy measures.
March 25, 2013
Reflation and Expenditure Switching in a Two Speed World
Chairman Bernanke says it all
March 06, 2013
Fiscal tipping points
At the recent U.S. Monetary Policy Forum I presented the paper Crunch Time: Fiscal Crises and the Role of Monetary Policy, along with co-authors David Greenlaw (Managing Director and Chief U.S. Fixed Income Economist for Morgan Stanley), Peter Hooper (Managing Director and Chief Economist for Deutsche Bank Securities Inc.), and Frederic Mishkin (professor at Columbia University and former governor of the Federal Reserve). One of the goals of our research was to try to understand the events that can lead a country to a tipping point in which it faces rapid increases in the interest rate on its sovereign debt, as a result of which the country finds itself with an unmanageable fiscal burden.
November 18, 2012
Europe in recession
The Business Cycle Dating Committee of the Centre for Economic Policy Research (the European counterpart of the U.S. NBER) last week issued a declaration that Europe entered a new recession a year ago, dating the business cycle peak at 2011:Q3.
November 14, 2012
Guest Contribution: Gridlock in Europe
The Rise and Fall of the IMF’s Reputation
Today we are fortunate to have as a guest contributor Joseph Joyce, Professor of Economics at Wellesley College, and author of the new book, The IMF and Global Financial Crises: Phoenix Rising? (Cambridge University Press).
October 21, 2012
Reducing oil imports
On Wednesday I noted that encouraging more U.S. oil production was unlikely to result in a significant drop in U.S. retail gasoline prices. Nevertheless, I believe that there would be some important economic benefits from lowering the U.S. oil import bill, as I discuss here.
October 09, 2012
International Finance and Open Economy Macro
Michael Hutchison, Professor of Economics at UC Santa Cruz, and Helen Popper, Professor of Economics at Santa Clara University, have organized the West Coast Workshop on International Finance and Open Economy Macroeconomics, taking place on Friday, October 19th. Those interested in thinking in a serious fashion about international should take a look.
September 18, 2012
Some observations on the difficult tasks of identifying and explaining such imbalances
July 23, 2012
The Path Not Taken ... Thus Far: Debt Deleveraging by Inflation
June 27, 2012
Links for 2012-06-27
Quick links to another proposal for Europe, and estimates of U.S. consumer benefits from lower natural gas and gasoline prices.
June 23, 2012
Thirty Years Ago Today
A personal reflection on the hazards of nationalist approaches to economic policy discourse
June 16, 2012
Options for Europe
This problem is not fixing itself.
June 07, 2012
The Euro Zone Crisis: Political and Economic Perspectives
Back in late April, I participated in panel "Europe at the Crossroads: The Euro Crisis and the Future of European Integration" (video). There're two graphs from my presentation I'd like to highlight, as they remain relevant even as the eurozone lurches into de facto recession .
April 12, 2012
Some Implications of the Trade Release
So-so news, and how we can sustain net export growth
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total February exports of $181.2 billion and imports of $227.2 billion resulted in a goods and services deficit of $46.0 billion, down from $52.5 billion in January, revised. February exports were $0.2 billion more than January exports of $180.9 billion. February imports were $6.3 billion less than January imports of $233.4 billion.
March 19, 2012
“The Eurozone in Crisis: Origins and Prospects”
Time to breathe a sigh of relief, with resolution of the Greek bailout? Not so fast. Greece is likely to need re-adjustments to its plan  Plenty of challenges remain in the eurozone; PIMCO's El-Erian says Portugal is next . In fact, as Jeffry Frieden and I argue, the resolution of the problems facing eurozone policymakers is likely to be contentious and prolonged. From an article forthcoming in the Spring issue of the La Follette Policy Report, by me and Jeffry Frieden (since the article is not yet published, the working paper version is here):
February 16, 2012
Guest Contribution: “International Reserves and the Composition of Equity Capital Inflows”
By Xingwang Qian and Andreas Steiner
February 07, 2012
A Conference on "Analyzing (External) Imbalances"
Last week I had the opportunity to attend an IMF conference (organized by Olivier Blanchard, Krishna Srinivasan, and Hamid Faruqee) focusing on the critical issue of assessing the sources of the pre-crisis imbalances in systemically key countries. The proceedings also had a forward looking component, highlighting the difficulties of determining when external imbalances are problematic. The conference proceedings are here.
February 02, 2012
Net Exports, Exports, Real Exchange Rates and Manufacturing
Several observers have noted that exports have increased substantially since the President made his commitment to doubling exports.  The most recent GDP release confirms improvement in the net exports to GDP ratio (ex. oil imports) and real exports, and a BEA release from a month and a half ago confirms a rebound in manufacturing value added.
January 09, 2012
"Financial Integration and Global Rebalancing"
I organized the International Economics and Finance Society panel on "Financial Integration and Global Rebalancing" at the Allied Social Sciences Association meetings in Chicago. In the end, the papers fit together much better than I had anticipated; they all dealt with with the factors driving the puzzling pattern of current account balances -- and how policy can possibly influence those patterns.
December 01, 2011
Thoughts on Europe, November 2010 and December 2011
Many countries with foreign debts in their own currency reduce their real debt burden by allowing their currency to drop in value, so that foreigners get repaid in less-valuable currency. But Greece and the other PIIGS cannot pursue this option on their own, for they share the euro with other countries, including some of the countries to which they owe money. Given this dynamic, investors and others worried that the European Central Bank would be forced to allow euro-zone inflation to rise -- and perhaps even to allow the euro to depreciate -- in order to alleviate some of the pain and suffering caused by its members’ debts.
November 15, 2011
Exports in the Recovery (II)
Following up on my previous post on the export contribution in the recovery (averaging 2.6 ppts since the trough), here are some additional observations. First, export growth in the current recovery has been substantially greater from the trough than in the last three recoveries.
November 07, 2011
Guest Contribution: "What can exports tell us about the economy?"
Today, we are fortunate to have Jay C. Shambaugh of the McDonough School of Business at Georgetown University as a guest contributor.
There has been considerable debate lately about why the U.S. economy continues to struggle. Some -- notably economists on the right and some Federal Reserve Bank Presidents -- have argued that concerns about future taxes and regulation are preventing American businesses from investing and hiring. Other economists have argued that we have inadequate aggregate demand in the economy and that explains slow GDP and employment growth -- not fear of future government policy.
November 02, 2011
Exports in the Recovery
Just a quick observation today, elicited by a question: what has been a consistent source of growth since the recovery began?
October 26, 2011
The Dollar and the Renminbi as International Currencies
There's been a lot of discussion of the potential rise of the Renminbi as an international currency. In particular, Jeffrey Frankel has recently written a paper on the subject (blogpost), backed in part on research we did in our papers   on the dollar. Now, the New York Fed's Linda Goldberg, Mark Choi and Hunter Clark have re-examined some of benefits of being an international currency in a post entitled What If the U.S. Dollar’s Global Role Changed?.
October 24, 2011
“Financial Stability in Emerging Markets: Dealing with Global Liquidity”
That was the title of a conference in Beijing (October 21st), organized by the Central University of Finance and Economics (CUFE), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), and the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) . I had the privileged of delivering a keynote speech. The conference agenda is here, and encompassed three sessions: Global Liquidity -- Consequences and Policy Options; Dealing with International Capital Flows; and a panel forum on International Capital Flows and the International Monetary System.
September 30, 2011
"International Policy Implications and Lessons From the Global Financial Crisis"
Last Friday and Saturday, the JIMF 4th Annual Conference at UC Santa Cruz took place, organized by Joshua Aizenman (UCSC & NBER), Robert Dekle (USC) & James Lothian (Fordham University & JIMF) and sponsored by JIMF, SCCIE-UCSC, and the FRBs of Atlanta and San Francisco. I didn't get a chance to go, which was unfortunate as the papers were relevant to thinking about how the international financial system is linked to the events of 2008.
September 17, 2011
Guest Contribution: "Europe's Lehman Moment"
Today, we're fortunate to have a guest contribution by Jeffry Frieden, Stanfield Professor of International Peace at Harvard University, and coauthor of Lost Decades: The Making of America's Debt Crisis and the Long Recovery. This article first appeared on Reuter's Opinion.
Europe's Lehman Moment
By Jeffry Frieden
Europe is in the midst of its variant of the great debt crisis that hit the United States in 2008. Fears abound that if things go wrong, the continent will face its own "Lehman moment" -- a recurrence of the sheer panic that hit American and world markets after the collapse of Lehman Brothers in October 2008. How did Europe arrive at this dire strait? What are its options? What is likely to happen?
August 30, 2011
Some groups have overstated the need for immediate fiscal retrenchment in order to push an agenda spending cuts, when in fact we face more serious problems of medium and long term spending growth and lagging tax revenues, and overall increasing indebtedness to the rest-of-the world. That second point (which I first made in 2005  ) has been somewhat neglected in the (misplaced) focus on reining in spending at the short horizon.
July 05, 2011
Will a Tax Repatration Holiday Spur Investment?
If you ask a person prefers to ignore data, the answer might be yes. If you ask a person who looks at the data, the answer is likely no. There are apparently a lot of the former . Anyway, to some analysis. From the abstract of a paper by Dharmapala, Foley and Forbes entitled Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act:
This paper analyzes the impact on firm behavior of the Homeland Investment Act of 2004, which provided a one-time tax holiday for the repatriation of foreign earnings by U.S. multinationals. ...
April 23, 2011
Trilemma Indices Updated
The Aizenman, Chinn and Ito indices that measure how countries align their policies to conform to the Trilemma    have been updated to 2009. Below is a time series plot of exchange rate stability, monetary independence and capital account openness for China.
March 30, 2011
Exports, Growth Prospects and Rebalancing
Exports in Context
Anybody who follows forecasts of GDP growth for 2011Q1 will notice that over time, estimates have been revised down (this is true for Macroeconomic Advisers, for instance). The dimmed prospects for GDP growth throws in high relief the importance of net exports. From the WSJ, "Foreign Shocks Temper America's Export-Led Rebound":
March 22, 2011
Musing about Shocks and Trends in an Era of Production Fragmentation
Yesterday's NYT article, Crises in Japan Ripple Across the Global Economy noted:
In the wake of Japan's cascading disasters, signs of economic loss can be found in many corners of the globe, from Sendai, on the battered Japanese coast, to Paris to Marion, Ark.
February 11, 2011
The December Trade Release
The December trade figures were released today. The trade deficit widened a bit, largely in line with the Bloomberg consensus, but a little less than assumed by BEA statisticians. This outcome meant a likely revision upward to 2010Q4 GDP. From Lahart/WSJ RTE.
February 01, 2011
Thoughts on Rebalancing, Capital Flows, Commodities
Those were some of the topics of a recent Asia-Europe Economic Forum conference that took place at the French Ministry of Economy, Finance and Industry, entitled "G20: Completing the Agenda", organized by Agnès Bénassy-Quéré and co-sponsored by CEPII, DG-ECFIN, and the Ministry of Economy, Finance and Industry.
January 06, 2011
The BIS on Global Forex Trends
The results from the triennial BIS forex survey are out. Unsurprisingly, trading volume continues to rise, the dollar retains its dominance in forex transactions, and the dollar/euro currency pair is the most heavily traded. But, notably, algorithmic trading is on the rise.
December 22, 2010
Consumption, Imports and the Prospects for US External Balances
Most forecasts incorporate a resurgence in the US trade and current account deficits. This projection makes sense to the extent that the US is expected to grow faster than Europe and Japan, and the estimated income elasticity of US imports exceeds that of US exports (the Houthakker-Magee finding ). Here’s a summary of forecasts for the current account.
December 20, 2010
Capital Controls on the Agenda?
At the recent conference related to G20 issues (discussed in this post), capital controls as a means of managing capital inflows was high on the agenda. The World Economic Forum's Financial Development Report has a nice schematic outlining some key types of controls:
December 17, 2010
Some Lessons from Recent Global Macro Events
I've just attended a conference sponsored by the Reinventing Bretton Woods Committee, entitled "The International Monetary System: Old and New Debates", which took place against the backdrop of France's chairmanship of the G-20.
November 13, 2010
Losing the Battle, Winning the War?
Or, the Economic Implications of the G-20 Meeting's Aftermath
The narrative emerging in the wake of the G-20 meetings is that, not only is the rest of the world angry at us over quantitative easing, but we also achieved none of our diplomatic objectives regarding rebalancing (the coverage seemed particularly negative on CNBC).    In addition, the outcome has been taken as a harbinger of the end of US dominance over economic policymaking, to the extent the US no longer has the intellectual high ground (given the failure to regulate the financial system in a sensible way) and the relative decline in economic weight.
November 09, 2010
Gold standard discussion
October 27, 2010
A Post-Mortem on the Fall and Rise in World Trade
And Implications for US Exports
Nearly two years ago, I noted the collapse in world trade, and observed that various explanations for the decline ranged from the drying up of trade financing, to amplification due to vertical specialization, to the composition effect (the fact that durables are over-represented in trade relative to GDP).
October 07, 2010
Some thoughts on the IMF reform debate
Today, we're fortunate to have Mark Copelovitch, Assistant Professor of Political Science and Public Affairs at the University of Wisconsin, as a Guest Contributor. He is also author of The International Monetary Fund in the Global Economy: Banks, Bonds, and Bailouts (Cambridge University Press, 2010).
October 04, 2010
Prospects for Growth And Rebalancing
From an article in the newest issue of GlobalAsia:
Only a few months ago, policymakers around the world were confronted with a series of challenges that, while substantial, seemed relatively well defined. International organizations such as the International Monetary Fund and the Organization for Economic Cooperation and Development highlighted the challenges of a two-speed recovery: emerging markets racing ahead, advanced economies plodding along. Global financial imbalances, particularly in current accounts, were a worry, but there were promising signs that growth and rebalancing in the United States and China would prove durable.
The prospects for a sustained global recovery now seem much less certain. ...
September 30, 2010
IMF World Economic Outlook online
Or at least, WEO Chapters 3 and 4.
Chapter 3 is entitled "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation", and Chapter 4 is "Do Financial Crises Have Lasting Effects on Trade?". Also online are Chapters 3 and 4 from the IMF Global Financial Stability Report.
September 13, 2010
The Global Economic Crisis
Impacts, Transmission and Recovery.
This was the topic of a conference I recently attended, sponsored by the Korean Development Institute and the East-West Center, organized by Maurice Obstfeld, Dongchul Cho, Andrew Mason and Sang Hyop Lee. It was a great opportunity to hear diverse views on the progress of the world economy. The papers are here.
August 30, 2010
What Can Sustain GDP Growth? Open Economy Version
With the consumer in the doldrums, residential investment unlikely to rebound in the near future, and government stimulus constrained by political gridlock, it's hard to see where the sources of aggregate demand will be. I'm going to extend Jim's search for silver linings in the latest GDP release.
August 19, 2010
The June Trade Release: A Clash of Narratives
The recent trade release for June sparked some consternation, as it indicated
2009Q2 2010Q2 growth, conditional on data already released, would be lower. But there was also some unhappiness as it was taken by some to mark the return of the spendthrift consumer. Yet, everywhere I see discussion of how consumption is lackluster, because households are deleveraging and beset by uncertainty.  These two narratives clash. Which one is right?
August 13, 2010
Chinn-Ito Capital Account Index up to 2008
July 13, 2010
Thinking about Trade and Trade Costs
One of the big issues facing policymakers around the world is the evolution of the pattern and volume of international trade flows. I recently participated in a very useful conference that included a number of papers that shed light on this important question. The conference, "Trade Costs and International Trade Integration -- Past, Present and Future," organized by Dennis Novy (Warwick University), David Jacks (Simon Fraser University), and Christopher Meissner (University of California, Davis), and sponsored by the UK's ESRC, and the University of Warwick's CAGE.
July 12, 2010
Measuring the Trilemma (with Special Reference to China)
Yesterday, Greg Mankiw discussed the trilemma in international finance, noting that countries can trade off between capital mobility, monetary policy autonomy, and exchange rate stability, but cannot fully all three of those objectives at a given time. In this post, Hiro Ito cites work with Joshua Aizenman and myself, in which we quantified how countries have traded off these objectives over time (paper here).
June 26, 2010
Views on Rebalancing the Global economy
VoxEU has released a primer on rebalancing the global economy here, edited by Stijn Claessens, Simon J Evenett and Bernard Hoekman. For those interested in the political feasibility of rebalancing, Jeff Frieden holds forth on "The political economy of rebalancing". The table of contents for the entire book is here.
June 21, 2010
Some Ruminations on Trade Flows, Trade Costs and Trends
One of the persistently challenges I consistently face in trying to model US import and export flows is the sensitivity of the results to the inclusion of time trends. Time trends are bothersome because they are, in one sense, a measure of our ignorance. That's a worry as we consider the feasibility of global rebalancing    .
June 17, 2010
Is Spain Next?
Today, we're fortunate to have Mark Copelovitch, Assistant Professor of Political Science and Public Affairs at the University of Wisconsin, as a Guest Contributor.
First off, let me thank Menzie for the opportunity to "pinch hit" here at Econbrowser. It's a pleasure to be here. I am Menzie's colleague in the La Follette School of Public Affairs here at Wisconsin, and my primary area of expertise is the politics of international finance.
May 20, 2010
What Does a Euro Depreciation Mean for the US?
The euro has been depreciating against the dollar over the past few weeks. The implications of this development for the US depend critically on (1) the extent of the depreciation, (2) the duration, and (3) the source of the depreciation. (See Jim's post for other links.)
May 16, 2010
Inflation, taxation, and the underground economy
University of Maryland Professor Boragan Aruoba (of the Aruoba-Diebold-Scotti Business Conditions Index fame) has an interesting new paper that offers another perspective on the challenges facing Europe.
May 13, 2010
Consumption and Imports: A Snapshot
The March trade release came in close to consensus (although suggesting higher 2010Q1 growth ). Comparing the advance release figures on real goods imports against the Jan-Mar figures from the trade release doesn't suggest a big revision (about 7.5 billion Ch.05$ on SAAR). I thought it would be interesting to see if there were any indications that American consumers were weaning themselves off of foreign consumer goods, using the 2010Q1 Advance release figures.
May 10, 2010
Quantifying Macro Spillovers
In a post regarding the transmission of financial turmoil from Europe to the US last week, I noted my research with Kristin Forbes on the determinants of the strength of financial market linkages. A more recent and extensive survey of the macroeconomic -- as opposed to financial -- linkages is provided by a recent released working paper coauthored by Ashoka Mody and Alina Carare at the IMF.
April 16, 2010
Recent estimates of Chinese Yuan misalignment
Yin-Wong Cheung, Eiji Fujii and I have just written a chapter for a VoxEU book The US-Sino Currency Dispute edited by Simon Evenett (link to blog post). After discussing the various approaches to measuring misalignment, we summarize the most recent estimates of CNY undervaluation.
April 12, 2010
The Post-Crisis Global Economy: Prospects for Recovery and Reform
Join a distinguished panel of speakers, including Jeffry Frieden, Stanfield Professor of International Peace, Department of Government, Harvard University, Menzie Chinn, Professor of Economics and Public Affairs, and Michael Knetter, Albert O. Nicholas Dean, Wisconsin School of Business, for a discussion of pressing questions facing the global and U.S. economies in the aftermath of the crisis. Moderated by Mark Copelovitch, Assistant Professor of Political Science & Public Affairs.
March 23, 2010
A Misalignment Primer
As the release of the next Treasury Report to Congress on International Economic and Exchange Rate Policies looms, it might be useful to recount the various ways in which different observers define currency "misalignment".
March 11, 2010
Durable Goods and the Collapse of Global Trade
Durable goods represent a moderate share of the economy in most industrial countries -- in the U.S., for example, they accounted for 23.6 percent of real GDP in 2008. However, durable goods make up a large share of international trade. In the U.S., they accounted for more than 60 percent of trade in goods (excluding energy products) in 2008. The figure is 70 percent on average for the OECD countries, according to several studies.
February 04, 2010
The Administration has committed itself to doubling exports in five years, via the National Export Initiative. Much of the journalistic coverage has focused on the regulatory, trade-credit financing, and export promotion measures being considered . I wanted to take a macro oriented approach to the viewing the plausibility of this goal. Let me address this issue from a variety of perspectives.
January 06, 2010
Reserves Are Revised Upward, the Dollar Share Declines
Perhaps the most startling thing about the new COFER data on reserves released by the IMF is not the declining dollar share in total reserves, but rather the fact that reserves have risen relative to where we thought they were . The change is entirely due to the upward revision in unallocated reserves by emerging market and LDC central banks. This point is shown in Figure 1.
January 04, 2010
Some International Finance at ASSA
December 27, 2009
The Prospects for Global Imbalances: A View from the IMF
Following up on recent posts (, , , ,  ) Here's another take on the prospects for resolving global imbalances, from Olivier Blanchard and Gian Maria Milesi Ferretti, "Global Imbalances: In Midstream?" Staff Position Note 09/29 (Dec. 22, 2009):
IV.B. Lower Global Imbalances in the Future
What will happen in the future depends on how long the factors we just listed will be in play [oil price decline, asset price busts, increase in home bias, the hit to durable consumption and investment goods demand].
Below is reproduced the IMF World Economic Outlook's October 2009 forecast for current account balances.
December 14, 2009
How High Do Income Elasticities Have to Be to Explain the Recent Import Drop-off?
There's been a debate over the cause of the trade flow drop-off, with varying explanations being offered. Broadly speaking, the explanations are (1) trade credit and credit crunch more broadly, (2) enhanced vertical specialization implying higher income elasticities, and (3) compositional effects (the trade dependent sectors were those most highly affected in the latest recession). Without necessarily offering definitive evidence one way or the other, I wanted to quantify the extent to which income elasticities had to be higher in order to rationalize the movements observed in US data.
December 03, 2009
Interesting Picture of the Day
What Are These Two Series?
October 26, 2009
The National Saving Identity: Private Saving, Household Saving, and Rebalancing
The National Saving Identity states:
CA ≡ (T-G) + (S-I)
Where CA is the current account, (T-G) is the consolidated government budget balance, and (S-I) is the private sector saving-investment balance. Figure 1 depicts the profound shifts that have occurred in these components (normalized by nominal GDP).
October 21, 2009
One Interpretation of Recession Causes... with Really Long and Really Variable Lags
In an Economix post today, titled "The Panic of '08: Recession Cause or Effect?" Professor Mulligan writes:
...recent research questions the claim that the financial panics themselves contributed to their contemporaneous and severe employment downturns.
October 19, 2009
Guest Contribution: East Asian Production Networks, Global Imbalances, and Exchange Rate Coordination
By Willem Thorbecke
Today, we're fortunate to have Willem Thorbecke, Senior Research Fellow at Asian Development Bank Institute and a Consulting Fellow at Japan's Research Institute of Economy, Trade and Industry, as a guest contributor.
Asia's role in the propagation of the global recession has been a subject of study, but relatively little attention has been devoted to the interaction of exchange rates and production chains. The structure of East Asian production networks and the severity of the recession places a premium on policy coordination in the region.
October 15, 2009
Dollar Demise and Double Dip: Latest Forecasts
I thought it of interest to see what surveys of forecasters indicate about two questions being asked: Is a dollar collapse imminent -- Martin Wolf is skeptical, while others  are convinced the end is nigh -- and is a double dip recession likely? I take a look at the messages conveyed by FX4casts.com and the WSJ October survey of forecasters.
October 12, 2009
Two Views: Blame It on Beijing Redux, or Joint Determination
From the abstract to Why are we in a recession? The Financial Crisis is the Symptom not the Disease!, by Ravi Jagannathan, Mudit Kapoor, and Ernst Schaumburg:
...We argue that the large increase in the developed world's labor supply, triggered by geo-political events and technological innovations, is the major underlying cause of the global macro economic imbalances that led to the great recession. ...
October 08, 2009
Trade Procyclicality in the Current Recession: The View from the US
Paul Krugman recently characterized the current pace of trade activity as worse than that during the Great Depression. And indeed, Barry Eichengreen and Kevin O'Rourke have been diligent in illustrating how this is the case, most recently in this September VoxEU post. Caroline Freund ([pdf] here) as well as the IMF in its most recent World Economic Outlook (Box 1.1) attribute the sharp drop-off in world trade to high income elasticities, in part associated with the high degree of vertical integration that characterizes the globalized world economy. Below, I want to examine that explanation from the perspective of the US data. This follows up on several of my recent posts on the subject.    
September 23, 2009
The G-20 and Rebalancing
We will press the G-20 to agree on a framework for strong, balanced and sustainable growth. As the U.S. starts to act more responsibility, it will borrow less and spend a bit less on the rest of the world's goods. That means borrowing by U.S. households cannot be the main source of global demand growth in the future.
September 19, 2009
Current Account Imbalances, and Global Liquidity
These topics are the subject of two special issues, the first in IMF Staff Papers, and the second in the Review of International Economics.
June 30, 2009
The Newest Data on Foreign Exchange Reserves
June 29, 2009
New Papers on International Finance: Crises, Puzzles, and Exchange Rates
Summertime is conference season, especially for those of us who don't live close to a major airport hub. The first conference I attended was the NBER's International Seminar on Macroeconomics, co-organized by Lucrezia Reichlin and Ken West. The conference was broken up into several sections: Financial Crises, International Economic Puzzles, Exchange Rates and Financial Development. Lot's of interesting papers, and plenty of stimulating discussion. I can't do justice to the proceedings, but I can provide the summaries of the papers.
June 25, 2009
So Much for "Exorbitant Privilege" and "Dark Matter" As Well: Anticipating the 2008 NIIP Release
In my last post, I cited Jeff Frankel's keynote speech from a recent Bank of Canada-ECB workshop. He also pointed to the end of "Exorbitant Privilege" and "Dark Matter", and other arguments of American exceptionalism. I think we'll see resounding evidence of this in Friday's release of the US end-2008 Net International Investment Position (NIIP).
June 22, 2009
The Global Saving Glut: Rest in Peace? Mirage? Bete noir?
I've just come back from two weeks on the road, during which time I attended a couple of conferences. The first conference (NBER International Seminar on Macroeconomics) dealt with issues of exchange rates, reserve accumulation and financial crises (more on that later). The second one, a joint Bank of Canada-ECB workshop (not online), focused on exchange rates in the global economy. At the latter, Jeff Frankel delivered the keynote speech, entitled "On Global Currency Issues", in which he outlined what's "out" and what's "in" in international finance (Powerpoint presentation here). One of the phenomena he concluded was no longer relevant was "the global saving glut".
June 17, 2009
Guest Blog: The Impact of the Trilemma Configurations on Macroeconomic Performance
By Hiro Ito
Today, we're fortunate to have Hiro Ito, Associate Professor of Economics at Portland State University as a guest blogger.
In my last posting, I introduced a recent paper coauthored with Menzie Chinn and Joshua Aizenman (UC, Santa Cruz) on the "trilemma," or "impossible trinity" -- a country simultaneously may choose any two, but not all, of the three goals, monetary independence, exchange rate stability and financial integration.
June 15, 2009
The Dollar as a Reserve Currency: Apres le Deluge
Time to review trends in reserves, against the backdrop of financial crisis, recession, and dollar gyrations. (I'll try to be original, but Brad Setser has been more diligent than I in covering these issues over the past few months.   )
A few observations:
- Known dollar reserves as a share of world reserves appear to be falling.
- Total dollar reserves have likely not declined as precipitously.
- Even with the decline in the dollar share, it is probably not as low as it was during the early 1990's.
- The dollar share is (mechanically) linked to the dollar's value.
- Known dollar reserves at end-2008 are less than predicted by a historical correlation.
- But this differential is infinitesimal compared to the "unallocated" share of total reserves.
June 08, 2009
DeGlobalization: Transitory or Persistent?
It's not news that the US current account, trade balance and trade balance ex.-oil are all moving toward zero percentage points of GDP. As I've observed before, time will tell how much of this movement is durable (see Bertaut, Kamin and Thomas for skeptical look; see also Cline-Williamson); this in turn depends on whether the adjustment reflects standard macro effects, including a permanent downshift in US consumption growth , and how much reflects perhaps transitory effects like a credit crunch in trade financing (as speculated upon here). Here's the trade balance situation for the US.
June 01, 2009
High Anxiety (about Interest and Inflation Rates)
In March 2001, I was tasked to follow developments in Japanese macro policy (including monetary, exchange rate, and banking recapitalization issues). Readers will be tempted to ask what this has to do with current events. Well, at the time, Japan was facing rapidly rising net debt-to-GDP ratios (rising from 60.4 ppts of GDP to 84.6 ppts from 2000 to 2005), and was embarking upon a policy of quantitative easing in an attempt to stave off a deep recession. And yet opponents of quantitative easing worried about hyper-inflation, even as y/y inflation at the time remained mired in the negative range. I didn't understand the fears at the time; and I still don't. Now flash forward eight years, and move across the Pacific.
May 30, 2009
Guest Blog: Japan's first trade deficit in 28 years
By Eiji Fujii
Today, we're fortunate to have Eiji Fujii, Professor of Economics at Tsukuba University as a guest blogger.
Shaken by the world financial crisis, Japan has recorded the first trade deficit (on the April-March fiscal year basis) in 28 years (see Figure 1). The trade balance of the 2008 Japanese fiscal year was about -725 billion yen. The last trade deficit (on the fiscal year basis) was recorded in 1980 when the second oil crisis hit the economy hard.
May 13, 2009
Additional Reflections on the March Trade Release
My views on the short term prospects for GDP growth at home and abroad were little changed (relative to this post) by the information in the March trade release. Goods imports are collapsing, albeit at a slower but still substantial rate, and goods exports are declining, with high volatility.
May 06, 2009
The Emerging Global Financial Architecture
Events, particularly these days, tend to outrun the best laid plans to anticipate research trends. And it might seem that this was true in the case of this conference, sponsored by UCSC's Santa Cruz Center for International Economics, the Journal of International Money and Finance, and the Federal Reserve Bank of San Francisco. The conference was planned last year, at a time when most academic researchers were aware and concerned about the incipient economic slowdown, and whether the major economies would "de-couple", and in turn how these factors would impact the constellation of global imbalances.
May 04, 2009
What Does the Collapse of US Imports and Exports Signify?
The Collapse in Relation to GDP
In an earlier post, I discussed the startling decline in US imports . Brad Setser has also reported on this phenomenon. This decline is not restricted to the United States, as noted in an OECD report released last week (h/t Torsten Slok):
April 27, 2009
The Decline in US Imports
I've been thinking about trying to convey exactly how startling the drop in U.S. imports has been. First, take a look how much non-oil goods imports (in real terms) have dropped, relative to, for instance, GDP.
Figure 1: Log GDP (blue, left scale), log goods import ex.-oil from NIPA (red, right scale), estimated from trade release (purple, right scale), all in Ch.2000$, SAAR. 2009q1 estimate is based on actual January and February data and March estimate incorporating continued 5% decline from February. NBER recession dates shaded gray. Source: BEA, GDP final release of 26 March 2009, February trade release, NBER, and author's calculations.
April 08, 2009
Guest Blog: The Enduring Trilemma
By Hiro Ito
Today, we're fortunate to have Hiro Ito, Associate Professor of Economics at Portland State University as a guest blogger.
While the current global crisis does not show any sign of bottoming out, policy makers around the globe are reevaluating international macroeconomic policies and discussing the post-crisis future of the international financial architecture -- as we saw in the recent G20 meeting.
January 21, 2009
A New Meme: Blame It on Beijing (and Seoul, and Riyadh...)
Perhaps I'm overstating it, but I think this is the abridged version of the Bush Administration's perspective on how we got into the financial mess we find ourselves in. You might ask why I focus on the ideas of the outgoing government. Well, it's because I'm confident that this will be a thesis pushed by some commentators eager to absolve previous policymakers of blame . And indeed (as Mish points out), this view has apparently adherents in high places.
January 14, 2009
The Startling Dropoff in Trade Flows
The trade release has already been remarked upon, in terms of the dropoff in both exports and imports signaling a synchronized recession. , , ,  I have little to add here, except for plotting the "cliff-diving" in log real terms.
January 12, 2009
International Imbalances: Measurement and Implications
Paul Kedrosky has observed that a statistical analysis (word cloud) of the American Economic Association session titles, or even of the papers, leads to the impression that the economics profession has been relatively uninterested in the ongoing financial and economic crisis. Unfortunately, this observation misses ignores the fact that session proposals are submitted a full eleven months ahead of the ASSA meetings. Think back to January 2008, and the terms ascribed to those who warned of a severe slowdown ("alarmist", etc.), and the whole discussion is cast in a different light.
January 01, 2009
"Trade finance is collapsing"
...said Victor K. Fung, the chairman of the Li & Fung Group, the giant supply chain management company that connects factories in China with retailers in the United States and Europe. "We've got orders we can't ship right now."
December 29, 2008
Aggregate Demand and Finance and the Collapse in Trade
The global financial crisis is drying up the financing that firms depend on for trade. That's making the global recession nastier and deeper than it otherwise would be.
As with all kinds of credit these days, financial institutions are making less trade finance available and charging more for it. But the squeeze in trade stands out because it pinches otherwise healthy companies that should be driving a recovery in global commerce. Already, the World Bank predicts trade will contract next year for the first time since 1982.
December 22, 2008
ZIRP and the exchange rate...and other macro variables
Several months ago, I discussed the implications of a model of the exchange rate wherein Taylor rule fundamentals -- the output , inflation and exchange rate gaps -- were central (post). In that paper [pdf], I showed that Taylor rule fundamentals outperformed purchasing power parity, interest rate parity, and the monetary model of exchange rates in terms of in-sample fit, at least insofar as the dollar/euro exchange rate is concerned.
December 03, 2008
Measuring Import Prices: Implications for GDP Growth
A lot of what has happened to GDP growth over the past few quarters has, in a mechanical sense, depended upon developments in the external accounts. In this post, I examine whether mismeasurement of import prices might have induced mismeasurement of economic output. This idea was prompted by hearing a presentation of Nakamura and Steinsson a couple months ago. The abstract to "Lost in Transit: Product Replacement Bias and Pricing to Market":
November 22, 2008
The Global Economic Crisis: Propagation to the Rest of the World
Last Thursday, I had the opportunity to participate in a panel on Global Economic Crisis: The Untold Stories, sponsored by the Center for World Affairs and the Global Economy (WAGE). I was tasked with surveying the impact on the economy outside the borders of the United States -- in 20 minutes.
November 17, 2008
Triple "Ut-Oh": September Trade Release and the End of the Consumer of Last Resort
Brad Setser says "Ut-Oh", beating me to the punch on the September trade release, which showed US exports plunging. It's a post that Paul Krugman rightly expresses some angst upon reading. And now I'm going to add two more reasons to worry (not that I think Setser and Krugman aren't aware of these points).
October 01, 2008
Chinese Trade: An Update
I was surprised by this item from the BBC:
Chinese trade surplus at new high
Wednesday, 10 September 2008
China's trade surplus hit a monthly record of $28.7bn (£16.28bn) in August as the gap with the US and Europe widened, despite weaker world demand.
September 11, 2008
Trade Deficit Reduction via Changes in Exports, Imports or Prices
Today's July trade release was a little bit of a surprise, due to oil ; Haver covers the numbers. Calculated Risk discussed the release, and actually took the outcome as a fairly positive, albeit with some anxiety about whether exports will keep up the robust growth necessary to continue shrinking the deficit.
I want to focus on a couple of other aspects of the release which seem to make me worry a bit more.
September 09, 2008
Taylor Rules, Synchronized Recession and the Potential for Competitive Depreciation
In yesterday's FT, "All in this together" assessed the possibility of a roughly synchronized downturn in the world's major economies, with the United States, ironically enough, suffering the smallest hit. This brings up all sorts of interesting questions regarding exchange rates, if one believes that Taylor rules define monetary policy making to some degree, and that interest differentials affect exchange rates.
August 25, 2008
The Dollar and the Trade Deficit: How Does Productivity Fit In?
Why is the trade deficit, even taking out oil, so large when the dollar is so weak? Maybe some insights can be gleaned from productivity measures.
August 13, 2008
The International Outlook: The View from Dallas
Enrique Martinez-Garcia and Janet Koech at the Dallas Fed present their perspective on the international macro outlook. The first is particularly interesting to me.
August 10, 2008
Current Account Adjustment Redux? What's Different this Time Around
July 28, 2008
Taylor rules, exchange rates, and the speculation about the dollar/euro rate
As Europe teeters on the edge of recession , and the United States remains mired in slow growth, expectations of what interest rates, and hence exchange rates, are shifting. Here's a familiar depiction of where policy rates in the US and the euro area have been, and where they are predicted to go.
July 23, 2008
Implications of adjustment to riskier dollar assets in a portfolio balance framework, illustrated in three steps
Consider a hypothetical world economy with assets denominated in dollars and euros.
July 18, 2008
IMF on the Global Macroeconomy, CBO on US-China Trade
The IMF released an update to it's World Economic Outlook yesterday.
- Global economic growth to slow significantly in second half of 2008.
- Rising energy, commodity prices have boosted inflationary pressure
- Need to adapt to shift in purchasing power from commodity users to producers
July 08, 2008
UAE & Other Gulf Countries Urged to Switch Currency Peg from the Dollar to a Basket That Includes Oil
By Jeffrey Frankel
The possibility that some Gulf states, particularly the UAE, might abandon their long-time pegs to the dollar is getting increasing attention (from Martin Feldstein and Brad Setser, for instance). It makes sense. The combination of high oil prices, rapid growth, a tightly fixed exchange rate, and the big depreciation of the dollar against other currencies (especially the euro, important for Gulf imports) was always going to be a recipe for strong money inflows and inflation in these countries. The economic dynamism -- most striking in Dubai -- is admirable and fascinating, but also now clearly indicative of overheating. Indeed inflation, as predicted, has risen alarmingly. Among other ill effects, it is producing unrest among immigrant workers. An appreciation of the dirham and riyal is the obvious solution.
July 06, 2008
The International Investment Position: Latest Estimates, and What's Missing
The BEA released the end-2007 International Investment Position data on June 27.
June 06, 2008
Oil Prices in Other Currencies
Some of the explanations for the dollar jump rely upon the perceived weakness in the dollar's value (and hence, by extension, Fed policy). Does this make sense?
June 04, 2008
More on De-Globalization: Oil, Transport Costs and Inflation
The impact of rising transportation costs, driven significantly by high oil prices, is already being seen in capital-intensive manufacturing that carry a high ratio of freight costs to the final sale price. But a new report has determined that higher energy prices are affecting transport costs at such an unprecedented rate that "the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today."
May 29, 2008
The End of a Trend? The Export and Import Price Release in Context
The BLS's Import/Export price release, from May 13th, might seem like old news. And some aspects are. But I think it is useful to think about what the trends in these price indices mean for general inflation and the adjustment process (this is in some sense an update on this post).
May 25, 2008
How Effective Will Monetary Easing Be? The Bank Lending Channel and the Implications of Increasingly Internationalized Banks
As I noted in a previous post, monetary policy works through various channels, one of which is the "bank lending channel". Lower policy rates, as witnessed in the past few months and shown below, should induce greater lending.
May 22, 2008
RMB Misalignment in a PPP Framework: The Impact of Data Revisions
The World Bank's new World Development Indicators were released a bit over a month ago. The impact on the estimates of RMB misalignment are substantial. (This is an elaboration on a RGEMonitor post by Yin-Wong Cheung from a week and half ago, and is based on preliminary results from a presentation made yesterday at a Deutsche Bundesbank and Center for Financial Studies/Goethe University Frankfurt Workshop on Panel Methods and Open Economies".)
May 19, 2008
Reconciling Estimates: Biofuels and Food Prices
The AP describes Lazear's views on the role of biofuels on rising prices thus: "US disputes IMF on food prices".
From the article by Desmond Butler:
WASHINGTON (AP) — The Bush administration is disputing the International Monetary Fund's claim that increased production of biofuels is the biggest factor in rising food prices.
May 06, 2008
Current Account Balances, Again
Two years ago, as part of a multi-year project, Charles Engel and I organized a conference on current account sustainability in major advanced economies. Lask week, we convened a follow-up conference aimed at updating our knowledge on this subject. Below is the latest read on the U.S. current account to GDP.
May 04, 2008
Updated Chinn-Ito Financial Openness Index Online
The newest version of the Chinn-Ito financial openness index (earlier discussed here), extending up to 2006, has just been posted. Here's the series for Argentina and for Venezuela.
April 20, 2008
Prospects for Federal Interest Payments to the Rest-of-the-World
I was struck at how Federal government interest payments to the rest of the world have risen even as interest rates have fallen.
April 14, 2008
The G-7 Communique and the Dollar
April 10, 2008
Revisions: The Global Outlook in the WEO
The IMF released the World Economic Outlook's forecasts yesterday. There's been plenty of coverage, so I won't recap the main points, but rather focus in on some interesting aspects:
- The rapidity of the downshifting of estimates since January.
- Commodity price prospects and the LDCs.
April 03, 2008
IMF World Economic Outlook Analytic Chapters Released
Several chapters of the IMF's semi-annual research document are now available online, in advance of the IMF-Bank meetings.
April 02, 2008
The Yuan on the Move: An Update
And a bit on the IMF's revised forecast for the US.
March 25, 2008
Recoupling, Monetary Policy Divergence, and the Dollar
At the risk of losing my audience by skipping over the the record housing price decline, and an outsized drop in the consumer confidence index, I'm going to focus on what seems like old news (but is being reflected in current news on the dollar), namely the OECD reduction in growth forecasts for the G-7 economies. The euro area economy is slated to do better than the US economy in 2008H1, but that's not saying much.
March 20, 2008
De-Globalization? Musing about Oil Prices and Trade Costs
This post recaps a post from over a year and a half ago, in light of surging oil prices. Most attention is rightly focused on the supply side effects of the increase in the real price of oil. However, another facet is the impact on transportation costs, and hence the tradability of goods across borders.
March 03, 2008
Two Questions: What Do Slowing Imports Mean? And Is There a J-Curve?
As the dollar continues to plumb new depths , and the economic slowdown continues, I want to discuss two questions about the trade balance that occur to me.
February 27, 2008
Musings on the Dollar: PPP and Thresholds
As the dollar hits a new low against the euro , some thoughts on what arguments make sense, given our knowledge of the statistical properties of real exchange rates.
February 25, 2008
What Explains Deviations from Interest Rate Parity in Emerging Markets?
Some people have the impression that financial capital zips to wherever the returns are highest. Maybe that's the case. But I'm not sure.
February 18, 2008
Trade, Exchange Rates and Pass Through
Some thoughts on what to make of the trade and export/import price releases.
February 13, 2008
International Aspects of Tax Policy in the 2008 Economic Report of the President
February 12, 2008
International Economics in the 2008 Economic Report of the President
Ignore the newspaper reports about the short term forecasts; that's old news, since these White House forecasts were made in November (and hence, it's not fair to compare these forecasts to current forecasts, as has been done in some journalistic accounts). And ignore the chapter on housing markets -- there's not going to be any discussion of how inadequate regulatory oversight (to put it mildly) might have contributed to this debacle. The interesting stuff is in the discussion -- or lack of discussion -- of certain international economics issues (no Renminbi!).
Economic Report of the President, 2008 [large pdf!]
February 07, 2008
Expenditure Switching or Expenditure Reduction Again: How Adjustment Is Occuring
The latest GDP release suggests trade balance adjustment is proceeding. Some of the adjustment is being driven by changes in the dollar's value. But I think a lot seems to be coming from the reduction in consumption and income growth.
January 27, 2008
How Much Stimulus? Dollar Amounts versus Efficacy
The stimulus package seems near a done deal, and the critiques are abounding -- as they should be. Greg Mankiw says no fiscal stimulus package is necessary, given the current state of the economy. Andrew Samwick says implementing a stimulus package ill conceived given that excessive deficits are what got us into this mess (a view I have some sympathy with). Jim Hamilton argues that a properly constructed fiscal stimulus is unlikely to be implemented in time, and may additionally further erode the dollar's role as a safe haven. Paul Krugman argues that the structure of the package leaves much to be desired.
January 09, 2008
What Are the Prospects for a Two Recession Bush Presidency?
With recession calls becoming more frequent (, , , , ) it might pay to revisit the indicators that the NBER looks at in determining the turning points in recessions (The fact that NBER put up some new recession-dating-FAQs just a couple days ago might be a leading indicator of sorts).
January 08, 2008
International Reserves: Messages from the ASSA
I did not get a chance to go to too many sessions at the ASSA meetings in New Orleans (the AEA agenda is here). That being said, I did manage to squeeze in a few on international economics, and the topic of several papers was foreign exchange reserves.
January 03, 2008
Do We Really Know that a Flexible Exchange Rate Regime Facilitates Current Account Adjustment?
In an post in VoxEU, Shang-Jin Wei alluded to work we have undertaken examining whether de facto exchange rate regimes have an impact on current account reversion.
Financial Globalization and the US Current Account Deficit
Matthew Higgins and Thomas Klitgaard at the Federal Reserve Bank of New York discuss the outlook for financing the deficit, going forward, in a new Current Issues. From the introduction:
January 01, 2008
The Dollar in the New Year
Is there (an "equlibrium" exchange rate) model for all seasons?
December 17, 2007
An Exercise in Sheer Conjecture
China, PPP, and Misalignment Estimates
December 11, 2007
Is the Dollar Near the Bottom (II)
Last week, I wrote a post examining what the measures of central tendency for the dollar's trajectory were, based upon some standard forecasts. This week, I want to examine more closely whether we should anticipate more depreciation, in real terms, by way of discussing alternative measures of the dollar's value.
November 01, 2007
Some Observations on the GDP Release
The BEA's NIPA release had some surprises for many. Here are some aspects of the release that I find surprising.
October 26, 2007
Have Net Exports Ever Prevented the U.S. from Going into Recession?
First, a look at what the blogosphere is thinking about recession.
October 12, 2007
The World Inverted: Does It Matter That Yield Curves Are Sloping Downward?
In glancing at Table 4 the last issue of the Economist (sub. req.), I was surprised that so many countries had downward sloping yield curves. Should we worry?
October 10, 2007
IMF World Economic Outlook on Managing Large Capital Inflows
The IMF has just released several chapters of its semi-annual World Economic Outlook. One chapter is entitled "Managing Large Capital Inflows".
October 08, 2007
What's a "Strong Dollar"?
I used to wonder about the use of this term a lot, at least in the context of government pronouncements. Here's my answer. First, the use of the term in context. From Bloomberg:
Weak Dollar Boosts Growth Without Fueling Inflation (Update1)
By Matthew Benjamin and Vivien Lou Chen
Oct. 8 (Bloomberg) -- Treasury Secretary Henry Paulson, whose signature appears on every new dollar bill, may find the weak currency with his name on it helps the U.S. economy more than the strong one he publicly endorses.
September 30, 2007
Foreign Exchange Market Transactions and Reserves: Recent Statistics
There's been a cornucopia of forex market information released in the past week, which I'm only now getting to. First, the BIS has released the preliminary results from its Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity, conducted in April of this year. The results are interesting, insofar as they confirm trends evident in the previous survey in 2004. Second, the IMF released its most recent tabulation of foreign exchange reserve holdings (COFER).
September 24, 2007
What would be the implications of stagflation for the dollar?
The dollar is declining, with no apparent support. That's because the recessionary factors seem to be dominating. But a reporter's question about what factors might support the dollar prompted me to think about other influences that might work in a direction opposite the forces alluded to in the conventional wisdom.
September 19, 2007
Divining the Dollar
The dollar declines in response to the drop in the target Fed Funds rate. What next?
September 18, 2007
Four Observations on Import and Export Prices and the Dollar
Some delayed reflections on exchange rates, trade prices, and the messages from the August data.
September 11, 2007
The Decoupling Scenario: Pre-Assessment
The U.S. economy appears to be slowing. Predictions of continued growth probably rely on assumptions the rest of the world continues to grow. How reasonable is this view?
August 23, 2007
How does China retain monetary autonomy?
As I discussed in earlier posts, China retains some policy autonomy by virtue of the presence of capital controls. A recent working paper by Ma and McCauley attempts to quantify how binding the controls are.
August 16, 2007
Part of the optimism regarding the economic outlook is based upon the robust growth -- to date -- in the rest of the world (see this post on the subject). The Euro zone looks like it's in for some slower growth, though.
August 08, 2007
Variation in Global Economic Growth
In discussing the U.S. economy, I keep on seeing this refrain from Treasury Secretary Paulson (this one happens to be from the NYT)
August 06, 2007
Almost Everything You Wanted to Know about G-7 Current Account Imbalances
A new book is out examining whether -- and if so how -- ongoing current account imbalances will be unwound.
August 03, 2007
Revaluation and China's Multilateral Trade Balance: First Estimates
Yin-Wong Cheung, Eiji Fujii and I have just completed a paper entitled China's Current Account and Exchange Rate" for a conference on China's Growing Role in World Trade. This paper follows up on some of the issues I laid out in these posts: , , , and .
July 30, 2007
US Economic Growth: Retrospect and Prospect
Some interesting tidbits can be gleaned from the BEA's recent release. First, despite the acceleration in growth in 2007Q2, the level of output in 2007Q2 is less than what we thought -- as of 28 June -- it was in 2007Q1. Second, q/q consumption growth now looks weaker than it did before. Third, while net exports provided a big boost to GDP growth, a large chunk of that effect is attributable to import compression, rather than export acceleration. How one views the durability of the net export effect depends in large part upon how one views the sources of import and export trends.
July 26, 2007
Will Dollar Depreciation Prevent A Recession?
As worries from ever expanding -- but always containable -- housing and mortgage market collapse mount (see this Reuters article), some analysts believe that the external accounts will save the day. From Bloomberg (July 23):
July 23, 2007
What is Chinese GDP really doing?
Amidst all the discussion about rampant Chinese GDP growth, the appropriate conduct of macro policy in restraining that growth, and the implications for the components of aggregate demand, a simple question leads to complicated answers.
July 20, 2007
"We have always thought that America got away with something."
Well, maybe not anymore. And perhaps not even before.
The quote is from an article on how the weak dollar is raising the costs of traveling to Europe, as the USD/EUR rate flirts with 1.40. The longer quote, from yesterday's NYT article entitled "As Dollar Crumples, Tourists Overseas Reel" , is:
July 16, 2007
More on the Yuan and the Chinese Trade Balance
More speculation on the Yuan's prospects. From Bloomberg:
July 12, 2007
A Tipping Point for the Dollar?
In a post over a year ago, I observed that the relative stability of the dollar would come to an end as a confluence of events occurred. Those would be the end to rises in the US interest rates, and the continued increases in policy rates abroad, especially in the euro area and the UK, against a backdrop of a massive current account deficit that requires large and continuous infusions of saving from the rest of the world (and indeed consumes most of the world's excess saving).
July 05, 2007
Maybe the Euro Isn't the Competition
Typically, people think of the euro as the most likely competitor to the dollar. And maybe it is in the long run (see these posts , , and this paper). But in the short term, maybe it's the British pound.
June 28, 2007
The 2006 Net International Investment Position
The BEA released the end-2006 net international investment position (NIIP) today.
June 25, 2007
Inflation: Local or Global?
What does the empirical literature say about the sources of inflation movements in an era of globalization?
June 20, 2007
Thinking about import prices, the dollar, and inflation
Some delayed reflections on the May import/export price release, and how to interpret the data in light of the empirics of exchange rate pass through.
June 18, 2007
Rejoice! The 2006 current account to GDP ratio has been revised up by 0.3 percentage points
There's a temptation to view the upward revision to the current account balance, and the components thereof, as yet more evidence that the US external situation is in better shape than commonly perceived.
June 14, 2007
Keeping China's Yuan in Perspective
The Treasury released its report International Economic and Exchange Rate Policies yesterday. As expected, the Treasury declined to declare China a currency manipulator. On the same day, four senators submitted legislation to tie Treasury's hands in terms of the actions it can take against countries with "misaligned" currencies.
June 10, 2007
Musings on Inflation Worries
The selloff in the stock market last week was attributed by some to inflation worries -- namely that persistent inflation means a reduction in the Fed Funds rate is less likely than the market had until recently believed.
June 08, 2007
The April Trade Release: Good and Ambiguous News
The April trade release surprised on the upside. Here are a few other insights, not all of which are unalloyed positives.
June 05, 2007
Financial Openness around the World
What do our indicators tell us?
May 28, 2007
More on Real Exchange Rate Changes and Trade Adjustment
Time for an update on estimated income and price elasticities of US trade flows. These issues are important to those of us who believe that the US remains vulnerable to shifts in the rest-of-the-world's willingness to finance the current account deficit. If you think it's just jolly fine and likely for the US to keep on borrowing at around 6.5 percent of GDP for the indefinite future, skip this post.
May 10, 2007
Oops. Or Trade Deficit Stabilization Deferred
May 08, 2007
The Empirics of Chinese Trade and Implications of Yuan Appreciation
In previous posts I've discussed some of the estimates of aggregate trade elasticities. Some new work presented at a recent IMF conference on Chinese trade suggests that we may need to revise some of our views on the efficacy of yuan appreciation for inducing expenditure switching.
April 30, 2007
Four Years after "Mission Accomplished"
I thought that it was proper and fitting to evaluate the state of affairs in Iraq four years after President Bush declared the end of major military combat operations in Iraq.
April 26, 2007
Further implications of the productivity slowdown for the dollar
In a previous post, I noted that the slowdown in economic growth in the US relative to rest-of-OECD would have a number implications for the dollar's value in nominal and real terms.
April 17, 2007
The Coming (?) US Current Account Adjustment: Two Questions Inspired by Two Graphs
The IMF has recently released its Global Financial Stability report. Two figures inspired two questions from me.
April 15, 2007
Trade adjustment via import compression or export expansion?
April 13, 2007
The Last Throes of PoMo Macro?
That is to say, is Post-Modernist Macroeconomic Policy over?
April 10, 2007
Are Democrats Truly More Protectionist? (Part II)
There was some disagreement with my assertion that Democrats were -- effectively -- not as protectionist as many have argued. Here are some more thoughts on the matter, as the Administration prepares the case for countervailing duties on Chinese imports .
April 07, 2007
Exchange rate depreciation and expenditure switching in the United States
The IMF's April 2007 World Economic Outlook has been released -- or at least part of it. One chapter, entitled Exchange Rates and the adjustment of External Imbalances [pdf], deals with a subject close to my heart.
March 27, 2007
Maybe we can't count on exorbitant privilege/dark matter/manna from heaven...
The new conventional wisdom is that the return foreigners obtain on U.S. assets is less than the return U.S. residents obtain on foreign assets. And that this means that the U.S. can build up a bigger foreign debt than traditional analyses; I've been skeptical , . Now, we have more reason to ask how robust is the finding of a durable earnings differential in favor of U.S. investors?
March 18, 2007
Attaining Internal and External Equilibrium in China
China raises rates again. What will higher rates do?
March 15, 2007
Negative Net Income: The 2006 Balance of Payments
Most commentary on the 2006q4 current account balance release focused on the improvement in the overall balance. Little noted is the fact that 2006 is the first year in which the net income category has registered negative.
March 13, 2007
The Term Spread, Cross Country
How does the term spread correlate with recession in other economies?
March 10, 2007
The January Trade Balance: Reading the Tea Leaves
Are declining capital imports growth rates an indicator of recession?
March 08, 2007
WMDs in Iraq, "Last throes..." and... "deficits don't matter"
According to former Secretary of Treasury Paul O'Neill, Dick Cheney is reputed to have said: "...deficits don't matter." (see Suskind's The Price of Loyalty, and online here). What's the (updated) evidence?
March 05, 2007
Globalization and Inflation: Thinking about Identification
Recent news articles (, ) and blog posts (Economists View, Big Picture) have discussed Bernanke's March 2 speech on globalization and inflation.
March 03, 2007
Featuring prominently in the new energy plan from President Bush is a call for changes in the corporate average fuel efficiency (CAFE) standards that the Administration claims could reduce U.S. gasoline consumption by 5% over the next 10 years. Here are some of the reasons I'm not thrilled by that suggestion.
February 12, 2007
The 2007 Economic Report of the President on Exchange Rate Determination (and the Renminbi)
The 2007 Economic Report of the President was released Monday afternoon. Chapter 7, entitled "Currency Markets and Exchange Rates," is a laudable exegesis on the determination of exchange rates.
February 09, 2007
Is a 12 Step Program Needed for Policymaking in Washington?
From the Wikipedia entry on 12-step programs:
February 06, 2007
A Race between Inflows and the Deficit
From today's Reuters:
February 04, 2007
Manufacturing, Tradables, and Trade Adjustment
In his preview of the 2007 Economic Report of the President, CEA Chair Ed Lazear presented the argument that manufacturing output is still growing.
Manufacturing, Tradables, and Trade Adjustment
In his preview of the 2007 Economic Report of the President, CEA Chair Ed Lazear presented the argument that manufacturing output is still growing.
January 29, 2007
Macroeconomic Implications of War with Iran
Or, "Oceania has always been at war with Eastasia". The speculation regarding imminent military action rises. What are the fiscal implications of a large scale missile campaign? What would be the repercussions of likely Iranian responses (including closing off the Straits of Hormuz)?
January 25, 2007
Exchange rates, output gaps and inflation rates
Is there any role for the Taylor rule in helping predict exchange rates?
January 22, 2007
Army Transformation sacrificed on the altar of ...(a) tax cuts, (b) Iraq, (c) other
January 18, 2007
Federal Government Interest Payments Rising
The Treasury Department reported a steady rate of purchases of Treasuries by foreigners (see the Bloomberg account here). Let's hope that continues -- although we should be cognizant of the ramifications: increasing debt and interest payments to foreigners.
January 13, 2007
The distribution of world income
One of the most profound questions in economics is why are some countries rich and others poor?
January 10, 2007
The Wartime Economy and Tax Policy
So Shinseki was right.
January 09, 2007
International Economics at the AEA/ASSA: Selected Items
The Allied Social Sciences Association (incorporating the AEA, the Econometric Society, the International Economics and Finance Society and many other groups) meetings took place in Chicago this last weekend. I wasn't able to go to that many sessions, but I did attend a few related to international issues.
January 04, 2007
President Bush on Economics
On Wednesday, the President writes in a Wall Street Journal op-ed (sub. req.):
January 02, 2007
Low Real Rates Disappear...but the Deficit Remains
I've been looking at real long term interest rates as proxied by nominal rates minus expected inflation. The problem of course is finding measures of expected inflation. Subtracting off the ex post rate (appropriate under the rational expectations hypothesis) can lead to misleading inferences -- and is not practicable for current measures of long term rates. Using ten year constant maturity rates and the Society of Professional Forecasters 10 year horizon CPI inflation rates yields the following picture.
December 28, 2006
Is Decoupling Possible?
The dream rebalancing scenario, in which adjustment of the world's imbalances occurs without fiscal responsibility returning to America, relies upon "decoupling".
December 22, 2006
Surge or no surge? minimal "burn rates" for operations in Iraq
Where are expenditure rates now? Where might they go?
December 20, 2006
The RMB: Where's it been and where's it going?
Faster appreciation against the dollar. And apparently against a broad basket of currencies.
December 18, 2006
Econoblog on "Dollars, Debt and the Trade Gap"
Thoughts on the Dropping Dollar
December 15, 2006
Bernanke in China
Distortion versus effective subsidy.
December 12, 2006
The October Trade Release
The non-oil trade balance stabilizes. Petroleum-related imports exceed the US-China trade deficit.
December 03, 2006
The yield curve and foreign purchases of U.S. debt
A few weeks ago I discussed some new research that suggests that the current negative spread between long-term and short-term yields may be a little less worrisome than earlier studies had led us to conclude, to the extent that the negative spread in part results from an unusually low term premium on U.S. bonds rather than an expectation of future declines in short-term yields. One factor that may be depressing that term premium is foreign holdings of U.S. securities.
November 25, 2006
Will the Dollar Plunge? Would that Be So Bad?
Yesterday's dollar plunge unnerved markets. What's the likelihood of a sustained, drastic decline?
November 21, 2006
Some Puzzling Effects of Productivity on the Real Exchange Rate
What should be the effect of productivity increases on the real exchange rate?
November 17, 2006
Can Gravity Be Defied?
"Dark Matter", like all stories about free lunches, still excites lots of people's imagination, as evidenced by the reaction to my post on the subject a week ago. Here is one picture that should further temper the excitement.
November 14, 2006
Current Account Imbalances, Again
November 10, 2006
RIP, Dark Matter As Cure-All
Two recent publications should help put to rest the conjecture that there are vast pools of U.S. wealth lying overseas, ready to save the day.
November 02, 2006
Estimating U.S.-China Trade Elasticities: Some Very Preliminary Results
Do we have any idea what the CNY appreciation against the dollar will accomplish?
October 16, 2006
How Strong Is (Was) the Dollar?
An alternative view on the dollar's strength and trend over time.
October 04, 2006
Twin deficits redux
On the current account deficit, "We have met the enemy, and he is us".
October 02, 2006
It's not such a small world after all (and it's getting bigger)
Taking a break from recession talk, I discuss some aspects of the progress of economic integration highlighted in a paper by Bergin and Glick presented at a SCCIE-JIMF conference on Financial and Commercial Integrations.
September 14, 2006
Measuring the U.S.-China trade balance
September 12, 2006
The July 2006 Trade Release
August 25, 2006
How Mobile Is Capital Internationally?
The issue of international capital mobility comes up time and time again. There is the worry of capital and associated production capacity moving abroad to China for lower wage rates, and if not to China, to the rest of the world to escape environmental regulations or to avoid corporate taxation. So how mobile is capital?
August 16, 2006
A closer look at the US-China trade figures...and more on the RMB
The Renminbi (RMB) is probably undervalued, according to some criteria. Would adjusting it fix the US-China trade deficit? Or the overall US trade deficit?
August 10, 2006
The June 2006 Trade Figures
Persisting trends, for now
August 02, 2006
The enigmatic Yuan
The Yuan has not been moving much. Or has it? And does it matter much for the U.S. current account deficit
July 20, 2006
(Non) transparency of GWOT expenditures, and an update on Iraq metrics
While the events in Lebanon and Gaza have pushed Iraq off center stage, Iraq and Afghanistan remain the largest fiscal drains on the U.S. Treasury and the military's ability to respond to other strategic challenges. In this light, GAO Comptroller David Walker's testimony on Tuesday [pdf] is both illuminating and depressing. From the Summary:
July 17, 2006
Some (delayed) reflections on whether the non-oil trade deficit stabilization at hand -- or not
I was out of the country when these data were released, so I didn't immediately write a post on the data. In any case several commentators covered the ground so well I didn't have much to add immediately. Several forwarded the possibility of trade deficit (as a share of GDP) stabiization (see here and here), in light of the fact that the May trade release which showed a smaller than consensus deficit. In the past I made similar observations (see here). I remain hopeful, but am still not yet convinced.
July 13, 2006
Out of sample prediction of the euro, pound and CAD
Once more unto the breach.
July 10, 2006
One picture from the 2005 International Investment Position release (and one from the NIPA)
Amid all the relief (see here and -- kind of -- here) over the improvement in the U.S. net international investment position (NIIP) despite the record current account deficit, the trend in one ratio was unremarked upon -- namely the ratio of U.S. Government securities held by non-residents, divided by GDP.
June 22, 2006
Measuring the import component of U.S. exports
In order to export in a competitive market, we need to import
June 13, 2006
The economic impact of a disruption to container trade
Congress acts -- to cut funds for port security
June 07, 2006
The dollar and interest rate expectations
What can one read from asset responses to "news"
June 05, 2006
Learning (or non-learning) from the Classical Age
Or, what if George W. Bush had lived in 480 BCE; would we all be speaking Persian?
May 31, 2006
Does a new economic team mean a new economic policy?
Henry Paulson has been nominated to the position of Secretary of Treasury. Will it matter?
May 30, 2006
The Euro, the Dollar and Globalization
Thinking about some big global macro issues
May 24, 2006
Gambling on Trade
In 2001, the Bush Administration set in motion the machinery to impose tariffs on steel imports. The purported reason was to secure fast track (trade negotiating) authority. How does that gamble look five years later?
May 23, 2006
Exchange rate pass through and dollar decline
Is there a direct relationship running from a change in the dollar's value and import and export prices and thence to consumer prices?
May 16, 2006
Is dollar depreciation a separate policy channel for trade balance adjustment?
The dollar is on the decline...more or less. Will this cause the long awaited adjustment?
May 12, 2006
March 2006 trade balance figures
Oil imports in the spotlight
May 11, 2006
The portfolio balance effect and reserve diversification
Implications from the debate over the Renminbi. And the Won. And the...
May 01, 2006
New research on the current account adjustment process
Insights on how global current account imbalances might be resolved
April 29, 2006
New Research on the Sources of Current Account Deficits
Some excerpts from a recent conference on Current Account Sustainability in Major Advanced Economies
April 24, 2006
Who's afraid of $3 gasoline?
Does the expected strong 2006:Q1 GDP report mean that the economy will shrug off the recent resurgence of gas prices?
April 20, 2006
Is the Renminbi (Rmb) undervalued in price terms? Does it matter if it is?
With the visit of President Hu to the United States, Chinese currency misalignment is at the top of the agenda. What is "misalignment"?
April 14, 2006
Real vs. nominal, seasonally adjusted vs. nsa
A primer on real, nominal, physical units, and seasonal adjustment
April 12, 2006
February Trade Figures
A (semi-) Positive Surprise on the trade balance
March 26, 2006
Facing the immigration question
Andrew Samwick had an extremely thoughtful post this weekend.
March 23, 2006
The dollar and purchasing power parity
In my post on the dollar's trajectory, one person asked about purchasing power parity (PPP). Here is a brief discussion of the relevance of this concept to exchange rate forecasts.
March 21, 2006
Postscript to "Critique of Pure Dark Matter"
Mixed news for 4th quarter net income in the current account release
March 15, 2006
Where are the financial crises?
Some other possible consequences of monetary tightening.
March 10, 2006
The downward march of the trade balanceSome context for the the latest trade deficit numbers
March 08, 2006
Still no correction from Homeland Security
The mainstream media finally seems to be catching on to the fact that the Dubai Ports World acquisition of the British port services company P&O would involve not six but over 20 U.S. ports. It's curious that no one has yet followed up on the fact that the reason the original number was reported as six is because that's the information that was given out by the Department of Homeland Security.
February 28, 2006
Homeland Security's curious "fact sheet"
Ben Muse and Econbrowser reader Movie Guy (in the comments to this post) have been investigating some information disseminated by the Department of Homeland Security that appears to be misleading or inaccurate.
February 27, 2006
Tempest in a Sea Port
The United-Arab-Emirates-based company Dubai Ports World has graciously requested a new 45-day review in the hopes of allaying concerns about its proposal to take over the British-based company P&O, which if approved would allow DP World to operate 11 of the 43 terminals at the ports of 6 U.S. cities. Here I summarize a few of the issues that have been raised about this takeover.
February 23, 2006
A Critique of Pure Dark Matter
Net income on the balance of payments might be essentially zero in 2005q4
February 20, 2006
Tackling "Oil Addiction"?Cognitive Dissonance in the 2006 Economic Report of the President
February 16, 2006
Open Economy Macro in the 2006 Economic Report of the President
Beryl Sprinkel meets Ben Bernanke
February 10, 2006
December 2005 trade figures and implications
The trade deficit (total and ex-oil) widens again.
February 07, 2006
US-centered vs. China (or "them")-centered Worldviews on Global Imbalances
Chinese foreign exchange reserves and current account surpluses are (still) rising. Why and how important is this phenomenon?
January 27, 2006
The 2005q4 GDP report and the trade balance
Little sign of the reversal in the trade deficit.
January 20, 2006
Strange ideas about the Iranian oil bourse
The internet can be a good source of information about issues that aren't adequately covered by the mainstream media. It can also be a font of considerable kookiness.
January 16, 2006
Long term prospects for U.S. net exports in perspective
Does the cross-border fragmentation of production mean that measured trade flows are irrelevant?
January 01, 2006
Government interest payments on the rise
Government interest payments are on their way up. Payments to non-residents are going up even faster.
December 21, 2005
What's out there?New IMF quarterly data on central bank reserve holdings
December 14, 2005
October trade balance numbers
At the tail ends of the distribution of expectations
November 18, 2005
Does manufacturing matter?
Tradables and nontradables in the current account adjustment process.
by Menzie Chinn
November 11, 2005
Latest trade figures
Is trade deficit stabilization at hand?
by: Menzie Chinn
November 02, 2005
How anomalous is U.S. current account behavior?
Is there statistical evidence for the "global savings glut"?
by Guest Blogger: Menzie Chinn