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181. 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

182. How Flexible Can Inflation Targeting Be and Still Work?

Author:
Adam S. Posen and Kenneth N. Kuttner
Publication Date:
09-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a target. The empirical analysis uses the speed of inflation forecast convergence, estimated from professional forecasters' predictions at successive forecast horizons, to gauge the perceived flexibility of the central bank's response to macroeconomic shocks. Based on this criterion, there is no evidence to suggest that the Bank of England's inflation target has compelled it to be more aggressive in pursuit of low inflation than the Federal Reserve.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
England

183. Renminbi Rules: The Conditional Imminence of the Reserve Currency Transition

Author:
Arvind Subramanian
Publication Date:
09-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Against the backdrop of the recent financial crisis and the ongoing rapid changes in the world economy, the fate of the dollar as the premier international reserve currency is under scrutiny. This paper attempts to answer whether the Chinese renminbi will eclipse the dollar, what will be the timing of, and the prerequisites for this transition, and which of the two countries controls the outcome. The key finding, based on analyzing the last 110 years, is that the size of an economy—measured not just in terms of GDP but also trade and the strength of the external financial position—is the key fundamental correlate of reserve currency status. Further, the conventional view that sterling persisted well beyond the strength of the UK economy is overstated. Although the United States overtook the United Kingdom in terms of GDP in the 1870s, it became dominant in a broader sense encompassing trade and finance only at the end of World War I. And since the dollar overtook sterling in the mid-1920s, the lag between currency dominance and economic dominance was about 10 years rather than the 60-plus years traditionally believed. Applying these findings to the current context suggests that the renminbi could become the premier reserve currency by the end of this decade, or early next decade. But China needs to fulfill a number of conditions—making the reniminbi convertible and opening up its financial system to create deep and liquid markets—to realize renminbi preeminence. China seems to be moving steadily in that direction, and renminbi convertibility will proceed apace not least because it offers China's policymakers a political exit out of its mercantilist growth strategy. The United States cannot in any serious way prevent China from moving in that direction.
Topic:
Economics, Markets, and Monetary Policy
Political Geography:
United States and China

184. What Can and Cannot Be Done about Rating Agencies

Author:
Nicolas Véron
Publication Date:
11-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Credit Rating Agencies (CRAs) are prominent participants in the assessment of credit risk by financial markets. They determine and publish credit ratings, which represent the CRA's opinions on issuers' relative probability of default. The market for credit ratings is currently dominated in most western countries by three players: n Standard Poor's (S) is a division of the McGraw- Hill Companies, a US-based media group whose ownership is dispersed (the largest shareholder is Capital Group, with 12 percent of shares); n Moody's Corporation is an autonomous US-based listed company with dispersed ownership (the largest shareholder is Berkshire Hathaway, with 12.5 percent of shares); n Fitch Ratings is a division of the Fitch Group which is jointly owned by Fimalac, a Paris-based listed investment vehicle (60 percent of shares), and the US-based Hearst Corporation (40 percent of shares).
Topic:
Debt, Economics, Globalization, International Trade and Finance, and Markets
Political Geography:
United States

185. The United States Should Establish Permanent Normal Trade Relations with Russia

Author:
Gary Clyde Hufbauer and Anders Åslund
Publication Date:
11-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
After 18 years, Russia is finally on the verge of acceding to the World Trade Organization (WTO). No country has struggled for so long to become a member of this important organization. The last impediment was removed on November 9, when Russia and Georgia concluded an agreement on monitoring trade flows across their disputed border. The WTO Working Party, which oversaw the negotiations, then approved Russian accession on November 10, clearing the way for formal membership to be adopted at the WTO ministerial conference to be held December 15–17, 2011 (WTO 2011).
Topic:
Conflict Resolution, Economics, International Trade and Finance, Markets, and Bilateral Relations
Political Geography:
Russia, United States, and Georgia

186. G-20 Reforms of the International Monetary System: An Evaluation

Author:
Edwin M. Truman
Publication Date:
11-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
With great French fanfare the G-20 committed itself in Seoul, Korea a year ago “to build a more stable and resilient international monetary system (IMS), including by further strengthening global financial safety nets.” As subsequently elaborated by French President Sarkozy and other French government officials, the agenda for IMS reform included five elements: surveillance of the global economy and financial system, the international lender-of-last-resort mechanisms (global financial safety nets), the management of global capital flows, reserve assets and reserve currencies, and IMS governance.
Topic:
Economics, Globalization, International Trade and Finance, Markets, and International Monetary Fund
Political Geography:
Korea

187. The Current Currency Situation

Author:
William R. Cline and John Williamson
Publication Date:
11-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The currency markets have been extremely disturbed for the last three months. The period witnessed a major strengthening of the US dollar in September, then the European currency crisis, a recovery of the euro when the markets believed that the crisis was being controlled, and then a rebound of the dollar. In view of these developments, those who follow currency movements need a new guide as to how the current values of currencies compare to our estimates of fundamental equilibrium exchange rates (FEERs). That is the main object of this paper.
Topic:
Economics, Globalization, International Political Economy, and Monetary Policy
Political Geography:
United States and Europe

188. Debt Relief for Egypt?

Author:
John Williamson and Mohsin S. Khan
Publication Date:
11-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The current government of Egypt has frequently stated that external financial assistance is necessary in the present economic situation and has expressed a strong preference for receiving it in part via debt relief. The question asked in this policy brief is whether there is a case for debt relief and if so what form this relief should take. This policy brief reviews a number of cases in which debt relief has been granted to draw out the lessons and implications for Egypt.
Topic:
Debt, Economics, Regime Change, and Popular Revolt
Political Geography:
Arabia, Arab Countries, North Africa, and Egypt

189. A China Round of Multilateral Trade Negotiations

Author:
Arvind Subramanian and Aaditya Mattoo
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Until recently, the World Trade Organization (WTO) has been an effective framework for cooperation because it has continually adapted to changing economic realities. The current Doha Agenda is an aberration because it does not reflect one of the biggest shifts in the international economic and trading system: the rise of China. Even though China will have a stake in maintaining trade openness, an initiative that builds on but redefines the Doha Agenda would anchor China more fully in the multilateral trading system. Such an initiative would have two pillars. First, a new negotiating agenda that would include the major issues of interest to China and its trading partners, and thus unleash the powerful reciprocal liberalization mechanism that has driven the WTO process to previous successes. Second, new restraints on bilateralism and regionalism that would help preserve incentives for maintaining the current broad non-discriminatory trading order.
Topic:
Economics, Globalization, International Trade and Finance, and Markets
Political Geography:
China and Israel

190. Asian Regional Policy Coordination

Author:
Edwin M. Truman
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper addresses two central questions for Asia and the world: (1) What is the purpose of Asian regional policy coordination going forward? (2) Will Asian regional policy coordination substitute or complement global policy coordination? The paper examines the potential coverage and content of such policy coordination, what is meant by Asia in this context, and how Asia fits in with global policy coordination processes. Truman addresses three related aspects of Asian regional policy coordination: macroeconomic policies, reserve management, and crisis management. He concludes that while the countries in the Asian region have not completely exploited the scope for regional policy coordination, more ambitious efforts focused on close integration are not likely to bear fruit, in particular, if they are conceived and promoted under the banner of Asian exceptionalism. These conclusions are based on two main considerations: First, Asian economies differ, and will continue to differ, sufficiently in size and stage of development such that it is difficult to conceive of a successful voluntary blending of their interests. Second, the central lesson of the global financial crisis and its current European coda is that global economic and financial integration has advanced sufficiently that countries can run but they cannot hide individually or in sub-global groups of countries.
Topic:
Economics, International Trade and Finance, and Regional Cooperation
Political Geography:
Europe and Asia