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861. Measurement and Inference in International Reserve Diversification

Author:
Anna Wong
Publication Date:
07-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
This paper analyzes international reserve diversification by examining changes in quantity shares of currencies held in foreign exchange reserves. It discusses alternative methodologies for constructing quantity shares and applies the preferred methodology to three sets of data on the currency composition of foreign exchange reserves: quarterly aggregate International Monetary Fund's Composition of Foreign Exchange Reserves (IMF COFER) data, quarterly IMF COFER data for industrial- and developing-country groups, and annual data for 23 individual countries that disclose the currency composition of their foreign exchange reserve holdings. What can one infer from available data about the diversification of foreign exchange reserves since 1999? The analysis suggests four conclusions: (1) The behavior of the quantity shares of the US dollar and the euro in total reserves is consistent with net stabilizing intervention; their quantity shares tend to rise when these currencies are declining and vice versa. (2) The principal driver of this stabilizing diversification over the period 1999Q1–2005Q4 is Japan. (3) The industrial countries as a group but excluding Japan do not indicate stabilizing diversification. (4) The nonindustrial countries as a group display stabilizing diversification over short periods of only a few quarters. In summary, the aggregate data conceal much diversity in the practices of individual countries.
Topic:
Economics, Foreign Exchange, and International Trade and Finance
Political Geography:
United States, Japan, and Asia

862. A (Lack of) Progress Report on China's Exchange Rate Policies

Author:
Morris Goldstein
Publication Date:
06-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
This working paper assesses the progress made in improving China's exchange rate policies over the past five years (that is, since 2002). I first discuss four indicators of progress on China's external imbalance and its exchange rate policies—namely, the change in (and level of) China's global current account position, movements in the real effective exchange rate of the renminbi (RMB), the role of market forces in the determination of the RMB, and China's compliance with its obligations on exchange rate policy as a member of the International Monetary Fund (IMF). I then discuss why the lack of progress in improving China's exchange rate policies matters for the economies of the China and the United States and for the international monetary and trading system. I also argue that several popular arguments and excuses for why more cannot be accomplished on removing the large undervaluation of the RMB are unpersuasive. Finally, I consider what can and should be done by China, the United States, and the IMF to accelerate progress over the next year or two.
Topic:
Development, Economics, and Foreign Exchange
Political Geography:
United States, China, and Asia

863. Offshoring, Outsourcing, and Production Relocation-Labor—Market Effects in the OECD Countries and Developing Asia

Author:
Jacob Funk Kirkegaard
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
This working paper evaluates the validity of available data on and the extent of the impact of offshoring on service-sector labor markets in the United States, EU-15, and Japan. A three-tier data validity hierarchy is identified. The impact of offshoring on employment in the three regions is found to be limited. Correspondingly, developing Asia is unlikely to experience large employment gains as a destination region. The paper highlights the case of the Indian IT industry, where the majority of job creation has been in local Indian companies rather than foreign multinationals. Domestic entrepreneurs have played a crucial role in the growth of the Indian IT-related service industry. However, increased tradability of services and associated skill bias in favor of higher skilled workers could have an uneven employment impact on developing Asia. Some high-skilled groups are benefiting and will continue to benefit dramatically from new employment opportunities and rising wage levels. Meanwhile, the same skill bias may eliminate many employment opportunities for unskilled or low-skilled groups in the region. Developing Asian countries therefore face a double educational challenge in the coming years: the need to simultaneously improve both primary and higher education.
Topic:
International Relations, Development, Economics, and Industrial Policy
Political Geography:
United States, Japan, and Asia

864. China's March on the 21st Century

Author:
Kurt M. Campbell and Willow Darsie
Publication Date:
05-2007
Content Type:
Working Paper
Institution:
Aspen Institute
Abstract:
After a protracted period of uncertainty concerning the nature of the foreign policy challenges that are likely to confront the nation over the course of first half of the 21st century, twin challenges are now coming into sharper relief. For the next generation or more, Americans will be confronted by two overriding (and possibly overwhelming) challenges in the conduct of American foreign policy: how to more effectively wage a long, twilight struggle against violent Islamic fundamentalists, and at the same time cope with the almost certain rise to great power status of China.
Topic:
International Relations, Foreign Policy, Development, Economics, and International Political Economy
Political Geography:
United States, China, America, and Asia

865. The Economic Logic of Illegal Immigration

Author:
Gordon H. Hanson
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Illegal immigration is a source of mounting concern for politicians in the United States. In the past ten years, the U.S. population of illegal immigrants has risen from five million to nearly twelve million, prompting angry charges that the country has lost control over its borders. Congress approved measures last year that have significantly tightened enforcement along the U.S.-Mexico border in an effort to stop the flow of unauthorized migrants, and it is expected to make another effort this year at the first comprehensive reform of immigration laws in more than twenty years.
Topic:
Conflict Prevention, Development, and Economics
Political Geography:
United States, Latin America, and Mexico

866. The Case for Wage Insurance

Author:
Robert LaLonde
Publication Date:
06-2007
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
An important component of U.S. productivity growth and economic competitiveness is a flexible labor market that shifts workers quickly into the jobs where they are most needed. Much of the time, this job shifting is fairly painless: Workers quickly find new positions that pay at least as much as their previous ones, often without an intervening spell of unemployment. But prime-aged and older workers can sometimes suffer large, long-term income losses. Such workers' well-founded fears about job displacement lead them and their advocates to resist policies such as free trade that are sometimes blamed for the job shifting. This resistance harms the majority of households because trade helps to lower prices, raise real incomes and promote economic growth. It also has foreign policy consequences since it threatens the United States' ability to play its traditional post–World War II role as the bulwark of a relatively open international trading system. And by reducing the dynamism of the U.S. economy, resistance to trade and other pro-growth policies can weaken the nation's long-term ability to exert global leadership.
Topic:
Economics, Government, and Markets
Political Geography:
United States

867. Bubbles in real estate? A Longer-Term Comparative Analysis of Housing Prices in Europe and the US

Author:
Daniel Gros
Publication Date:
10-2007
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The downturn in the US housing market has attracted a lot of attention as it has sparked a global financial crisis. It is generally assumed that the eurozone does not face a similar problem. This paper shows that this assumption is wrong. The euro area average index of real housing prices has risen almost as much as that of the US and is now (as that of the US) about 40% above its 30-year average. This is similar to the overvaluation of Japanese real estate at the height of the Japanese bubble, which was then followed by over a decade of continuous decline. Over the last 30 years, the euro area index for real housing prices has tended to follow that of the US quite closely. The lag is now much shorter than in the 1970s or 1980s. The euro area market is thus likely to turn soon as well. One feature of housing price cycles that tends to be forgotten is their extraordinary length: many last for more than ten years. This persistence means that the downswing, which now seems to have started, is likely to last at least until the next decade. Within the euro area, there are large divergences: cases of 'froth' (Spain, for example) co-exist alongside cases of declining prices (Germany). These divergences have persisted for over a decade and have led to important macroeconomic disequilibria. The paper also develops an indicator of 'housing overhang', which shows by how much demand for new construction has to decline to bring the supply of housing back to normal levels. This indicator suggests that there is virtually no housing overhang in the eurozone on average and that it is of a manageable magnitude in the US. Spain and Ireland, however, face a massive housing overhang and thus probably a sharp deceleration of construction demand.
Topic:
Economics and Markets
Political Geography:
United States and Europe

868. Credit Crisis: The Sky is not Falling

Author:
Anthony Downs
Publication Date:
10-2007
Content Type:
Policy Brief
Institution:
The Brookings Institution
Abstract:
U.S. stock markets are gyrating on news of an apparent credit crunch generated by defaults among subprime home mortgage loans. Such frenzy has spurred Wall Street to cry capital crisis. However, there is no shortage of capital – only a shortage of confidence in some of the instruments Wall Street has invented. Much financial capital is still out there looking for a home.
Topic:
Economics and Markets
Political Geography:
United States

869. An Empirical Analysis of Middle Class Welfare - Testing Alternative Approaches

Author:
Aparna Mathur and Kevin A. Hassett
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
Every year the Census Bureau reports data on income inequality and poverty, based on income estimates derived from the Current Population Survey. Our analysis suggests that the data may not be presenting an accurate picture. By under-reporting incomes, leaving out certain sources of income, and not making equivalence adjustments that are now standard among researchers, the reports present an imperfect picture of overall welfare. We develop an alternative that relies on data from the National Income and Product Accounts. Our data reveal that real median incomes have been increasing in the recent period, albeit at a slower rate than the long-term average. Using the same methodology for consumption, we find that consumption for all income groups, including the middle, has been growing robustly in recent times. This is in contrast to statistics reported by the Consumer Expenditure Survey, the most often cited data for all consumption analysis, which show middle class consumption declining.
Topic:
Development, Economics, and Human Welfare
Political Geography:
United States

870. Famine in North Korea: AsiaSource Interview with Marcus Noland

Author:
Nermeen Shaikh
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Asia Society
Abstract:
Marcus Noland is a senior fellow at the Peterson Institute for International Economics. His work encompasses a wide range of topics including the political economy of US trade policy and the Asian financial crisis. Mr Noland is unique among American economists in having devoted serious scholarly effort to the problems of North Korea and the prospects for Korean unification. He won the 2000–01 Ohira Masayoshi Award for his book Avoiding the Apocalypse: The Future of the Two Koreas.
Topic:
Development, Economics, and Markets
Political Geography:
United States, America, Asia, North Korea, and Korea