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341. Should central banks target stock prices?

Author:
Paul De Grauwe
Publication Date:
09-2008
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The question of whether central banks should react to stock price developments has been hotly debated. This discussion has intensified since the eruption of the credit crisis. According to some analysts, including myself, the failure of the US Federal Reserve under Alan Greenspan to react to the bubbles in the stock and housing markets helps to explain the financial excesses and the subsequent crisis.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
United States

342. Nafta toward a Common Currency: An Economic Feasibility Study

Author:
Kelly Hugger
Publication Date:
07-2008
Content Type:
Working Paper
Institution:
Department of Economics and Business, Colorado College
Abstract:
The recent emergence of the Euro, combined with the completion of a decade of North American Free Trade Agreement (NAFTA) has sparked interest in adopting a common currency for North America. This study examines the likelihood that Canada, Mexico, and the United States will adopt a common currency under fixed exchange rate regimes. The benefits and costs of a common currency are explored using the theory of optimum currency areas (OCA). Empirical research focuses on several variables including intra-regional and intra-industry trade, trade openness, gross domestic product, inflation rates, interest rates, economic growth rates, business cycle synchronization, factor mobility, fiscal policy and monetary policy coordination. The analysis also presents a comparative analysis of NAFTA with Economic and Monetary Union (EMU) nations on different economic criteria. Finally, correlation and regression analysis further explores the likelihood that members of NAFTA will economically integrate. Though this research concludes that it is economically feasible for NAFTA members to move towards a common currency, this venture depends on the political readiness of the nations.
Topic:
International Trade and Finance, Regional Cooperation, Treaties and Agreements, and Monetary Policy
Political Geography:
United States, Canada, North America, and Mexico

343. 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

344. 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

345. 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

346. Confronting Climate Change: A Strategy for U.S. Foreign Policy

Author:
David G. Victor, Michael A. Levi, George E. Pataki, and Thomas J. Vilsack
Publication Date:
06-2008
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Unchecked climate change is poised to have wide-ranging and potentially disastrous effects over time on human welfare, sensitive ecosystems, and international security. This urgent challenge demands that the United States and the world take comprehensive action to limit the buildup of greenhouse gases in the atmosphere and to address the consequences of any unavoidable climate change.
Topic:
Climate Change, Environment, and International Trade and Finance
Political Geography:
United States

347. 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

348. "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

349. 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

350. 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