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771. How Did We Get into This Financial Mess?

Author:
Lawrence H. White
Publication Date:
11-2008
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
As policymakers confront the ongoing U.S. financial crisis, it is important to take a step back and understand its origins. Those who fault "deregulation," "unfettered capitalism," or "greed" would do well to look instead at flawed institutions and misguided policies. The expansion in risky mortgages to under qualified borrowers was encouraged by the federal government. The growth of "creative" nonprime lending followed Congress's strengthening of the Community Reinvestment Act, the Federal Housing Administration's loosening of down-payment standards, and the Department of Housing and Urban Development's pressuring lenders to extend mortgages to borrowers who previously would not have qualified.
Topic:
Economics and Government
Political Geography:
United States

772. International Competition and Inflation: A New Keynesian Perspective

Author:
Luca Guerrieri, Christopher Gust, and David López-Salido
Publication Date:
01-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We develop and estimate an open economy New Keynesian Phillips curve (NKPC) in which variable demand elasticities give rise to changes in desired markups in response to changes in competitive pressure from abroad. A parametric restriction on our specification yields the standard NKPC, in which the elasticity is constant, and there is no role for foreign competition to influence domestic inflation. By comparing the unrestricted and restricted specifications, we provide evidence that foreign competition plays an important role in accounting for the behavior of inflation in the traded goods sector. Our estimates suggest that foreign competition has lowered domestic goods inflation about 1 percentage point over the 2000-2006 period. Our results also provide evidence against demand curves with a constant elasticity in the context of models of monopolistic competition.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States

773. Measuring U.S. International Relative Prices: A WARP View of the World

Author:
Charles P. Thomas, Jaime Marquez, and Sean Fahle
Publication Date:
01-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In this paper we construct a new measure of U.S. prices relative to those of its trading partners and use it to reexamine the behavior of U.S. net exports. Our measure differs from existing measures of the dollar's real effective exchange rate (REER) in that it explicitly incorporates both the difference in price levels between the United States and developing economies and the growing importance of these developing economies in world trade. Unlike existing REERs, our measure shows that relative U.S. prices have increased significantly over the past 15 years. In terms of simple correlations, the relationship between our measure of relative prices and U.S. net exports is much more coherent than that between existing REERs and net exports. To explore this relationship further, we use our measure to construct an index of foreign prices relevant for U.S. export volumes and reexamine several export equations. We find that export equations with the new index dominate those with previous measures in terms of in-sample fit, outof- sample fit, and parameter constancy. In addition, we find that with the new index of foreign prices the estimated elasticity of U.S. exports with respect to foreign income is a good bit higher than the unitary elasticity found in previous studies using other price measures. This has implications for U.S. current account adjustment.
Topic:
Economics, Foreign Exchange, International Trade and Finance, and Markets
Political Geography:
United States

774. Multilateralism beyond Doha

Author:
Arvind Subramanian and Aaditya Mattoo
Publication Date:
10-2008
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
A fundamental shift is taking place in the world economy to which the multilateral trading system has failed to adapt. The Doha process focused on issues of limited significance while the burning issues of the day were not even on the negotiating agenda. The paper advances five propositions: (1) the traditional negotiating dynamic, driven by private-sector interests largely in the rich countries, is running out of steam; (2) the world economy is moving broadly from conditions of relative abundance to relative scarcity, and so economic security has become a paramount concern for consumers, workers, and ordinary citizens; (3) international economic integration can contribute to enhanced security; (4) addressing these new concerns-relating to food, energy, and economic security-requires a wider agenda of multilateral cooperation, involving not just the World Trade Organization but other multilateral institutions as well; and (5) despite shifts in economic power across countries, the commonality of interests and scope for give-and-take on these new issues make multilateral cooperation worth attempting.
Topic:
Security, Economics, International Trade and Finance, Treaties and Agreements, and World Trade Organization
Political Geography:
United States, China, and Europe

775. Trade Liberalization: Cordell Hull and the Case for Optimism

Author:
Douglas A. Irwin
Publication Date:
07-2008
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
The news from Geneva of the breakdown of the Doha Round after seven years of effort has generated a great deal of pessimism about the future of multilateral trade agreements. America's troubles with the World Trade Organization (WTO) are of course only the beginning. There are also domestic problems when it comes to trade policy, an issue that ties together America's economic prosperity and its global political influence. Recent public opinion polls in the United States reveal increased skepticism about the benefits of globalization and diminished support for free trade policies. The post–World War II bipartisan consensus in favor of open trade has broken up, leading to gr eater resistance to new trade agreements in Congress, as reflected in the House's recent decision to postpone consideration of the Colombia free trade agreement (FTA). Despite efforts in the Doha Round to limit agricultural subsidies, Congress recently showered domestic farmers with more cash in the recently passed Farm Bill, even at a time when commodity prices are soaring.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
Geneva, United States, America, and Colombia

776. PolicyWatch #1425: Interfaith, Oil, and Afghanistan: Where Saudi and U.S. Interests Diverge

Author:
Simon Henderson
Publication Date:
11-2008
Content Type:
Policy Brief
Institution:
The Washington Institute for Near East Policy
Abstract:
Saudi king Abdullah is in the United States this week to discuss issues of considerable interest to both countries. Tomorrow and Thursday, he is in New York City for an interfaith meeting he is sponsoring and which President Bush will be attending. On Friday and Saturday, the Saudi monarch will be at the White House, where he will be the sole Islamic or Arab representative at a summit of major economic powers discussing the world financial crisis. In a separate meeting with President Bush, he is expected to report on Saudi mediation efforts with the Taliban in Afghanistan. Despite some common interest in all these areas, perspectives differ significantly on issues such as radical Islam and the price of oil. The United States, particularly during a time of presidential transition, should be careful not to concede ground on continuing points of disagreement.
Topic:
Economics and Oil
Political Geography:
Afghanistan, United States, Middle East, Asia, and Saudi Arabia

777. "Fear"and Offshoring: The Scope and Potential Impact of Imports and Exports of Services

Author:
Lori G. Kletzer and J . Bradford Jensen
Publication Date:
01-2008
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
While the uproar over offshoring has largely subsided since the 2004 presidential campaign, there continues to be concern and anxiety regarding the potential impact of offshoring in general and services offshoring in particular. With the economy softening and potentially headed for a recession in the midst of the current presidential campaign, worries about jobs and globalization seem likely to reemerge.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States

778. Strengthening Trade Adjustment Assistance

Author:
Howard F. Rosen
Publication Date:
01-2008
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In 1962, when the United States was running a trade surplus, imports were barely noticeable, and manufacturing employment was increasing, Congress made a commitment to assist American workers, firms, and communities hurt by international trade, by establishing the Trade Adjustment Assistance (TAA) program. This commitment was based on an appreciation that despite their large benefits, widely distributed throughout the economy, international trade and investment could also be associated with severe economic dislocations.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States

779. Fine in 2009 (Not So Great in 2008)

Author:
John H. Makin
Publication Date:
01-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The good news about the problems in the financial sector and the larger economy in the United States emanating from the persistent drop in house prices is that they will eventually end, and the underlying resiliency of the U.S. economy will reemerge. The bad news about these problems is that they are going to continue for some time and get worse before they improve. Efforts to address them so far have been ineffective because they have been aimed at containing a subprime credit crisis, not at containing a rapidly spreading primecredit, solvency crisis that is leading the U.S. economy into recession.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States

780. The New Deal Jobs Myth

Author:
Amity Shlaes
Publication Date:
01-2008
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
Democratic presidential candidates are invoking the New Deal as a model for addressing infrastructure, economic, and employment problems in the United States. But a careful look at New Deal spending suggests, in the words of Amity Shlaes, “not how much the public works achieved . . . [but] how little.” Advocates for new federal government spending on highways, buildings, and roads should carefully weigh the need against the damage that comes from projects and jobs created for political reasons.
Topic:
Economics, Human Welfare, and Political Economy
Political Geography:
United States