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2. Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?
- Author:
- Olivier Blanchard, Gustavo Adler, and Irineu de Carvalho Filho
- Publication Date:
- 11-2015
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Many emerging-market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. The authors study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, they look at the response of different countries to plausibly exogenous gross inflows and explore the cross-country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, they find that larger FXI leads to less exchange rate appreciation in response to gross inflows.
- Topic:
- Economics, Emerging Markets, Foreign Exchange, and Monetary Policy
- Political Geography:
- Global Focus
3. Are Capital Inflows Expansionary or Contractionary? Theory, Policy Implications, and Some Evidence
- Author:
- Olivier Blanchard, Jonathan D. Ostry, Atish R. Ghosh, and Marcos Chamon
- Publication Date:
- 11-2015
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The workhorse open-economy macro model suggests that capital inflows are contractionary because they appreciate the currency and reduce net exports. Emerging-market policymakers, however, believe that inflows lead to credit booms and rising output, and the evidence appears to go their way. To reconcile theory and reality, the authors extend the set of assets included in the Mundell-Fleming model to include both bonds and nonbonds. At a given policy rate, inflows may decrease the rate on nonbonds, reducing the cost of financial intermediation, potentially offsetting the contractionary impact of appreciation. The authors explore the implications theoretically and empirically and find support for the key predictions in the data.
- Topic:
- Economics, Emerging Markets, International Trade and Finance, and Monetary Policy
- Political Geography:
- Global Focus
4. The Future of Worldwide Income Distribution
- Author:
- Tomas Hellebrandt and Paolo Mauro
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Over the next two decades the structure of world population and income will undergo profound changes. Global income inequality is projected to decline further in 2035, largely owing to rapid economic growth in the emerging-market economies. The potential pool of consumers worldwide will expand significantly, with the largest net gains in the developing and emerging-market economies. The number of people earning between US$1,144 and US$3,252 per year in 2013 prices in purchasing power parity terms will increase by around 500 million, with the largest gains in Sub-Saharan Africa and India; those earning between US$3,252 and US$8,874 per year in 2013 prices will increase by almost 1 billion, with the largest gains in India and Sub-Saharan Africa; and those earning more than US$8,874 per year will increase by 1.2 billion, with the largest gains in China and the advanced economies.
- Topic:
- Economics, Emerging Markets, Globalization, and Labor Issues
- Political Geography:
- Africa and Asia
5. The Financial Sector and Growth in Emerging Asian Economies
- Author:
- William R. Cline
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The financial sectors in Asian emerging-market economies are now relatively unlikely to provoke new financial crises, either because of reforms after the East Asian financial crisis in the later 1990s or because of the dominance of state-owned banks not subject to bank runs. Financial intermediation is surprisingly high and is consistent with higher rates of saving and investment and hence growth in the main economies of the region (as compared to, say, counterparts in Latin America). Nonetheless, there are sharply diverging patterns (e.g., high foreign ownership of banks in Korea versus minimal presence in China) and differing national structures (bank dominated, portfolio oriented, and diversified) within Asia. Cline recommends establishing long-term plans to improve efficiency in state-owned banks or reduce their dominance and pursuing bank capitalization targets at least as ambitious as those of Basel III. Cline also calls for ensuring adequate regulation of growing nonbank intermediaries, reversing a recent trend toward national barriers to foreign banks in some economies, and improving the legal security of bank regulators.
- Topic:
- Economics, Emerging Markets, Financial Crisis, and Reform
- Political Geography:
- Asia
6. Addressing Currency Manipulation Through Trade Agreements
- Author:
- C. Fred Bergsten
- Publication Date:
- 01-2014
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- A bipartisan majority in both Houses of Congress is insisting that the United States include a provision in future trade agreements that would bar currency manipulation. A letter from 60 senators to Secretary of the Treasury Jacob Lew and United States Trade Representative (USTR) Michael From an on September 23, 2013, called for "strong and enforceable foreign currency manipulation disciplines" in the Trans-Pacific Partnership (TPP) while 230 members of the House of Representatives told President Barack Obama on June 6, 2013, that "it is imperative that (the TPP) address currency manipulation.to create a level playing field for American businesses and prevent more US jobs from being shipped overseas." The trade promotion authority (TPA) legislation proposed by congressional trade leaders on January 9, 2014, establishes the avoidance of currency manipulation as a "principal US negotiating objective" in its future trade agreements.
- Topic:
- Economics, Emerging Markets, International Trade and Finance, and Monetary Policy
- Political Geography:
- United States
7. Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and Global Financial Crises
- Author:
- Roberto Alvarez and José De Gregorio
- Publication Date:
- 11-2014
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Latin American performance during the global financial crisis was unprecedented. Many developing and emerging countries successfully weathered the worst crisis since the Great Depression. Was it good luck? Was it good policies? In this paper we compare growth during the Asian and global financial crises and find that a looser monetary policy played an important role in mitigating crisis. We also find that higher private credit, more financial openness, less trade openness, and greater exchange rate intervention worsened economic performance. Our analysis of Latin American countries confirms that effective macroeconomic management was key to good economic performance. Finally, we present evidence from a sample of 31 emerging markets that high terms of trade had a positive impact on resilience.
- Topic:
- Emerging Markets, International Trade and Finance, Monetary Policy, and Financial Crisis
- Political Geography:
- Asia and Latin America
8. US Employment Deindustrialization: Insights from History and the International Experience
- Author:
- Robert Z. Lawrence and Lawrence Edwards
- Publication Date:
- 10-2013
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Manufacturing is a key sector of the US economy. Although value added in manufacturing represented just 11.9 percent of GDP in 2012, manufacturing activity is strongly associated with economic growth, because manufacturing serves as the fulcrum of supply chains that combine and process raw materials and services to produce goods.1 In addition, the sector is among the most dynamic—accounting for about 70 percent of US spending on business research and development—and it regularly outstrips the rest of the economy in productivity growth. Over the long run, the contributions of US manufacturing to total output growth have been steady. Measured in 2005 dollars, for example, the share of manufacturing in US output was about the same in 2005 as in 1947.
- Topic:
- Economics, Emerging Markets, Industrial Policy, and International Trade and Finance
- Political Geography:
- United States
9. The Hyperglobalization of Trade and Its Future
- Author:
- Arvind Subramanian and Martin Kessler
- Publication Date:
- 07-2013
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper describes seven salient features of trade integration in the 21st century: Trade integration has been more rapid than ever (hyperglobalization); it is dematerialized, with the growing importance of services trade; it is democratic, because openness has been embraced widely; it is criss-crossing because similar goods and investment flows now go from South to North as well as the reverse; it has witnessed the emergence of a mega-trader (China), the first since Imperial Britain; it has involved the proliferation of regional and preferential trade agreements and is on the cusp of mega-regionalism as the world's largest traders pursue such agreements with each other; and it is impeded by the continued existence of high barriers to trade in services. Going forward, the trading system will have to tackle three fundamental challenges: In developed countries, the domestic support for globalization needs to be sustained in the face of economic weakness and the reduced ability to maintain social insurance mechanisms. Second, China has become the world's largest trader and a major beneficiary of the current rules of the game. It will be called upon to shoulder more of the responsibilities of maintaining an open system. The third challenge will be to prevent the rise of mega-regionalism from leading to discrimination and becoming a source of trade conflicts. We suggest a way forward—including new areas of cooperation such as taxes—to maintain the open multilateral trading system and ensure that it benefits all countries.
- Topic:
- Economics, Emerging Markets, Globalization, and International Trade and Finance
- Political Geography:
- Europe, Asia, and North America
10. Why Growth in Emerging Economies Is Likely to Fall
- Author:
- Anders Åslund
- Publication Date:
- 11-2013
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Emerging-market growth from 2000 to 2012 was untypically high. This paper highlights the many reasons why emerging-economy growth is likely to be lower going forward. Much of the catch-up potential has already been used up. The extraordinary credit and commodity booms are over, and many large emerging economies are financially fragile. They have major governance problems, so they need to carry out major structural reforms to be able to proceed with a decent growth rate, but many policymakers are still in a state of hubris and not very inclined to opt for reforms. They are caught up in state and crony capitalism. Rather than providing free markets for all, the West might limit its endeavors to its own benefit. Economic convergence has hardly come to an end, but it has probably reached a hiatus that is likely to last many years. The emerging economies need to improve their quality of governance and other economic policies substantially to truly catch up. For a decade or so, the West could take the global economic lead once again as in the 1980s.
- Topic:
- Economics, Emerging Markets, International Trade and Finance, Monetary Policy, and Governance
- Political Geography:
- Russia, China, India, South Africa, and Brazil
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