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1321. Fed Policy: Good Intentions, Risky Consequences

Author:
Charles I. Plosser
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The last five years have been an extraordinary time for the global economy and monetary policymakers. The financial crisis and the severe global recession that followed have tested our resolve, our patience, and our economic theories. To restore the health of ailing financial markets and economies, central banks have driven shortterm interest rates to essentially zero, expanded their balance sheets to unprecedented levels, and engaged in market interventions that have blurred the lines between monetary policy and fiscal policy.
Topic:
Economics and Health

1322. The Fed Needs to Change Course

Author:
David Malpass
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This article describes the Federal Reserve's monetary policy, examines its economic impact, and discusses possible exits. Federal Reserve policy is on the wrong course: it is harming economic growth, hurting savers, damaging markets, setting dangerous precedents and misallocating capital away from job-creating parts of the economy. The Fed's September 2012 policy change, in which it announced a third round of quantitative easing (QE3), was a major increase in the aggressiveness of monetary policy and, in my view, another drag on economic growth.
Topic:
Economics

1323. Avoiding the Next Crisis: Can Central Banks Learn?

Author:
Robert L. Hertzel
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Any effort to avoid future recessions must rest on an organized way to learn from the past. However, the absence of such efforts within central banks renders such learning problematic and makes likely the recurrence of episodes of recession and financial market turmoil. Critical to learning is the use by policymakers of models to evaluate the past performance of monetary policy. These models should not be the complicated, multiequation models favored by the forecasting departments of central banks. Rather, they should be simple models that require policymakers to take a stand on the basic issues in monetary economics: the nature of the price level (monetary or real) and how well the price system works to maintain output at potential (full employment). They should serve as a safeguard to the understandable tendency of central bankers to attribute economic disturbances exclusively to real shocks rather than monetary shocks.
Topic:
Economics

1324. The Gold Standard, the Euro, and the Origins of the Greek Sovereign Debt Crisis

Author:
Harris Dellas
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The entry of Greece into the euro zone in 2001 was widely expected to mark a transformation in the country's economic destiny. During the decade of the 1980s, and for much of the 1990s, the economy had been saddled with double-digit inflation rates, double-digit fiscal deficits (as a percentage of GDP), large current-account imbalances, very low growth rates, and a series of exchange rate crises. Adoption of the euro—the value of which was underpinned by the monetary policy of the European Central Bank (ECB)—was expected to produce a low-inflation environment, contributing to lower nominal interest rates and longer economic horizons, thereby encouraging private investment and economic growth. The elimination of nominal exchange-rate fluctuations among the former currencies of members of the euro zone was expected to reduce exchange rate uncertainty and risk premia, lowering the costs of servicing the public sector debt, facilitating fiscal adjustment, and freeing resources for other uses.
Topic:
Economics
Political Geography:
Europe

1325. The Euro at a Crossroads

Author:
Wolfgang Munchau
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
It was one of the author's predictions in 1998 that the euro zone would end up teaching us more about economics compared to what economics could teach us about the euro zone. While many of the author's predictions of that year did not hold, including the forecast that the euro would challenge the dollar as the world's foremost reserve currency, this particular prediction ultimately turned out to be correct. A monetary union is a hybrid between a fixed exchange rate system and a unitary state, one that is fully captured neither with closed-economy macro models nor classical international macro models of fixed exchange rates.
Topic:
Economics
Political Geography:
Europe

1326. Does Internationalizing the RMB Make Sense for China?

Author:
Yukong Huang and Clare Lynch
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The last time a Chinese currency was used as an international medium of exchange was four centuries ago, when China's share of global GDP in PPP terms was nearly 30 percent (about twice its current level), the country was a major global trading power, and Chinese copper coins circulated throughout East Asia to India and even beyond (Horesh 2011). In the following centuries, silver dollars and paper bills replaced copper coins and China's share of external trade declined. Now, with China's return to the position of largest global trader and second-largest economy in the world, it is not surprising that discussion of internationalizing China's currency has resumed.
Topic:
Economics
Political Geography:
China and East Asia

1327. Capital Freedom in China as Viewed from the Evolution of the Stock Market

Author:
Zhiwu Chen
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Since reforms started in 1978, China has made commendable progress in achieving capital freedom and individual liberty. Prior to 1978, private enterprises with more than eight employees were prohibited and there were no capital markets. Private entrepreneurs were labeled “Capitalist tails,” and political movements were launched frequently to “cut the capitalist tails.” For several decades, Chinese citizens could only obtain employment and economic means from government organizations and state-owned enterprises, which strictly limited individual liberty. Today there are more than 10 million privately owned enterprises, making up more than 80 percent of each year's employment growth. As a result of less regulation and more room for entrepreneurship, it is relatively easy to register and start a business. Public equity offering opportunities and bank financing are also increasingly available to private firms as well. Chinese, young and old, can choose among jobs provided by government organizations, SOEs, private businesses, and foreign-owned firms. As capital freedom has increased, the rise of the individual and liberty is one of the highlights achieved in China's development over the past 35 years.
Topic:
Economics
Political Geography:
China

1328. US-Japan Relations: Abe Settles In

Author:
Nicholas Szechenyi and Michael J. Green
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
Comparative Connections
Institution:
Center for Strategic and International Studies
Abstract:
Prime Minister Abe focused intently on economic policy and led his Liberal Democratic Party to a resounding victory in the July Upper House election, securing full control of the Diet and a period of political stability that bodes well for his policy agenda. Multilateral gatherings in Asia yielded several opportunities for bilateral and trilateral consultations on security issues, and the economic pillar of the alliance also took shape with Japan's entry into the Trans-Pacific Partnership negotiations and discussions on energy cooperation. Comments on sensitive history issues sparked controversy but did not derail bilateral diplomacy. The nomination of Caroline Kennedy as US ambassador to Japan marks a new chapter in the relationship.
Topic:
Economics and Government
Political Geography:
Japan

1329. US-China Relations: Sizing Each Other Up at Sunnylands

Author:
Bonnie Glaser and Jacqueline Vitello
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
Comparative Connections
Institution:
Center for Strategic and International Studies
Abstract:
With their domestic challenges in mind and a shared need for a stable bilateral relationship, Presidents Barack Obama and Xi Jinping met for a day and a half “no necktie” official working meeting to discuss the panoply of bilateral, regional, and global issues that affect US and Chinese interests. The fifth annual Strategic and Economic Dialogue (S) was held in Washington on July 10-11, along with the Strategic Security Dialogue (SSD) and the first Cyber Working Group. Cyber security, especially cyber theft, was a prominent and contentious issue, aggravated by the revelations of former NSA contractor Edward Snowden. Maritime disputes in the East and South China Seas were also a source of tension. The bilateral military relationship was a bright spot, with the visit to the US of Chinese Defense Minister Chang Wanquan.
Topic:
Economics
Political Geography:
China and Washington

1330. US-Southeast Asia Relations: Philippines - An Exemplar of the US Rebalance

Author:
Sheldon Simon
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
Comparative Connections
Institution:
Center for Strategic and International Studies
Abstract:
The Philippines under President Benigno Aquino III has linked its military modernization and overall external defense to the US rebalance. Washington has raised its annual military assistance by two-thirds to $50 million and is providing surplus military equipment. To further cement the relationship, Philippine and US defense officials announced that the two countries would negotiate a new “framework agreement” under the 1951 Mutual Defense Treaty providing for greater access by US forces to Philippine bases and the positioning of equipment at these facilities. Washington is also stepping up participation in ASEAN-based security organizations, sending forces in June to an 18-nation ASEAN Defense Ministers Plus exercise covering military medicine and humanitarian assistance in Brunei. A July visit to Washington by Vietnam's President Truong Tan Sang resulted in a US-Vietnam Comprehensive Partnership, actually seen as a step below the Strategic Partnerships Hanoi has negotiated with several other countries. Myanmar's president came to Washington in May, the first visit by the country's head of state since 1966. An economic agreement was the chief deliverable. While President Obama praised Myanmar's democratic progress, he also expressed concern about increased sectarian violence that the government seems unable (or unwilling) to bring under control.
Topic:
Economics
Political Geography:
Washington, Asia, and Singapore