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32. Combating Widespread Currency Manipulation
- Author:
- Joseph E. Gagnon Gagnon
- Publication Date:
- 07-2012
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Widespread currency manipulation, mainly in developing and newly industrialized economies, is the most important development of the past decade in international financial markets. In an attempt to hold down the values of their currencies, governments are distorting capital flows by around $1.5 trillion per year. The result is a net drain on aggregate demand in the United States and the euro area by an amount roughly equal to the large output gaps in the United States and the euro area. In other words, millions more Americans and Europeans would be employed if other countries did not manipulate their currencies and instead achieved sustainable growth through higher domestic demand.
- Topic:
- Economics, International Trade and Finance, Markets, and Monetary Policy
- Political Geography:
- United States, America, and Europe
33. The Coming Resolution of the European Crisis: An Update
- Author:
- C. Fred Bergsten and Jacob Funk Kirkegaard
- Publication Date:
- 06-2012
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Getting the diagnosis right is a prerequisite for understanding the euro area predicament and evaluating key decisions taken since early 2010. As we laid out in Bergsten and Kirkegaard (2012), while the euro area faces multiple overlapping and mutually reinforcing elements of fiscal (Greece), banking (Ireland/Spain), and competitiveness (Southern periphery) crises, it is first and foremost facing a crisis of institutional design. The common currency as designed in the Maastricht Treaty of 1992 is a half-built house without the critical components of banking and fiscal union necessary to sustain it through the type of crushing economic and financial down- turn witnessed since October 2008.
- Topic:
- Economics, International Trade and Finance, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe
34. Europe's Single Supervisory Mechanism and the Long Journey Towards Banking Union
- Author:
- Nicolas Véron
- Publication Date:
- 12-2012
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- On June 29, 2012, the heads of state and government of the 17 euro area countries issued a landmark statement that started with the sentences “We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB [European Central Bank] for banks in the euro area the ESM [European Stability Mechanism] could, following a regular decision, have the possibility to recapitalize banks directly” (Euro Area Summit Statement 2012). This statement was received by the investor community and the European public as marking the initial step towards a European banking union, i.e., a shift of the key instruments of banking policy from the national to the European level to enable the formation and maintenance of an integrated European banking system.
- Topic:
- Economics, Globalization, International Trade and Finance, and Monetary Policy
- Political Geography:
- Europe
35. Southern Europe Ignores Lessons from Latvia at Its Peril
- Author:
- Anders Åslund
- Publication Date:
- 06-2012
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In the current financial crisis plaguing Europe, Latvia stands out for resolving its financial problems quickly and resolutely. After contracting 24 percent in 2008 and 2009, it grew at the rate of 5.5 percent in 2011. The speed and determination. with which the government carried out austerity measures in 2009 and restored confidence after suffering the worst output decline is a crucial lesson for the ailing South European countries—Greece, Italy, Portugal, and Spain. Many policy observers and economists have dismissed Latvia's crisis resolution as irrelevant to the situation in Southern Europe. The Latvian orange, they say, cannot be compared with the South European apples. I argue otherwise.
- Topic:
- Economics, International Trade and Finance, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe, Greece, and Latvia
36. Restoring Fiscal Equilibrium in the United States
- Author:
- William R. Cline
- Publication Date:
- 06-2012
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Halfway through this presidential election year, there is great uncertainty about how, when, and even whether the United States will restore fiscal sustainability. As shown by the near-default because of the impasse over the debt ceiling in July 2011, the two parties have been in sharp opposition on this issue. The Republicans have insisted that adjustment be accomplished by spending cuts rather than tax increases. Two hundred and thirty eight Republican congressmen and 41 Republican senators have signed the Grover Norquist pledge to oppose any attempt to raise marginal tax rates or reduce deductions without implementing offsetting tax reductions. In contrast, Democratic lawmakers have tended to emphasize the maintenance of social and entitlement programs and expressed a willingness to restore higher tax rates if necessary.
- Topic:
- Economics, Monetary Policy, Financial Crisis, Governance, and Law
- Political Geography:
- United States
37. Right Idea, Wrong Direction: Obama's Corporate Tax Reform Proposals
- Author:
- Gary Clyde Hufbauer and Martin Vieiro
- Publication Date:
- 05-2012
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The need for US corporate tax reform is blindingly obvious. Conservatives contend that the top corporate tax rate— whether measured in statutory or effective terms—is the second highest in the Organization for Economic Cooperation and Development (OECD). Liberals argue that the US corporate tax system is riddled with complex “loopholes,” enabling many firms—whether incorporated or not—to pay less than their fair share.
- Topic:
- Economics, International Trade and Finance, Monetary Policy, and Governance
- Political Geography:
- United States
38. Does Monetary Cooperation or Confrontation Lead to Successful Fiscal Consolidation?
- Author:
- Adam S. Posen, Tomas Hellebrandt, and Marilyne Tolle
- Publication Date:
- 04-2012
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Active accommodation of fiscal consolidations by monetary policy is controversial, as can be seen in current euro area discussions. While many observers acknowledge that there is usually a place for monetary accommodation in response to fiscal consolidation, a sequencing argument is often heard today that fiscal commitment must precede any loosening. Some analysts go further to suggest that toughness by central banks taking a hard line on adjustment is critical to inducing sustained fiscal stabilization. This policy brief looks at the recent historical record of central bank behavior vis-à-vis fiscal authorities, at least until the current crisis period, and whether accommodative approaches ahead of consolidations have proven dangerous or helpful. The authors also try to assess the market credibility of fiscal consolidations as a function of the central banks' monetary stance prior to fiscal consolidation. They find clear evidence of positive associations between the degree of monetary ease in advance of fiscal consolidation programs and both those programs' success and their market credibility.
- Topic:
- Economics, Markets, Monetary Policy, Financial Crisis, and Governance
39. Overlooked Opportunity: Tradable Business Services, Developing Asia, and Growth
- Author:
- J. Bradford Jensen
- Publication Date:
- 11-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper argues that developing Asia is overlooking an opportunity for increased growth and development through trade in business services. Developing Asia would benefit from liberalizing services trade as it has benefited from liberalizing goods trade. This argument rests on these key findings: business services are important for growth, developing Asia is relatively under-endowed with business services, many business services are tradable, and developing Asia has relatively high barriers to services trade.
- Topic:
- Economics, Emerging Markets, International Trade and Finance, Markets, and Monetary Policy
- Political Geography:
- Israel and Asia
40. Assessing Potential Inflation Consequences of QE after Financial Crises
- Author:
- Samuel Reynard
- Publication Date:
- 11-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Financial crises have been followed by different inflation paths which are related to monetary policy and money creation by the banking sector during those crises. Accounting for equilibrium changes and non-linearity issues, the empirical relationship between money and subsequent inflation developments has remained stable and similar in crisis and normal times. This analysis can explain why the financial crisis in Argentina in the early 2000s was followed by increasing inflation, whereas Japan experienced deflation in the 1990s and 2000s despite quantitative easing. Current quantitative easing policies should lead to increasing and persistent inflation over the next years.
- Topic:
- Development, Economics, Emerging Markets, Monetary Policy, and Financial Crisis
- Political Geography:
- Latin America