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421. International Risk-Sharing and the Transmission of Productivity Shocks

Author:
Sylvain Leduc, Giancarlo Corsetti, and Luca Dedola
Publication Date:
02-2005
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
A central puzzle in international finance is that real exchange rates are volatile and, in stark contradiction to efficient risk-sharing, negatively correlated with cross-country consumption ratios. This paper shows that a standard international business cycle model with incomplete asset markets augmented with distribution services can account quantitatively for these properties of real exchange rates. Distribution services, intensive in local inputs, drive a wedge between producer and consumer prices, thus lowering the impact of terms-of-trade changes on optimal agents' decisions. This reduces the price elasticity of tradables separately from assumptions on preferences.
Topic:
Development, Economics, International Trade and Finance, and Science and Technology
Political Geography:
United States

422. Expansionary Fiscal Shocks and the Trade Deficit

Author:
Luca Guerrieri, Christopher Gust, and Christopher Erceg
Publication Date:
01-2005
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In this paper, we use an open economy DGE model (SIGMA) to assess the quantitative effects of fiscal shocks on the trade balance in the United States. We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labor income tax rate. Our salient finding is that a fiscal deficit has a relatively small effect on the U.S. trade balance, irrespective of whether the source is a spending increase or tax cut. In our benchmark calibration, we find that a rise in the fiscal deficit of one percentage point of GDP induces the trade balance to deteriorate by less than 0.2 percentage point of GDP. Noticeably larger effects are only likely to be elicited under implausibly high values of the short-run trade price elasticity.
Topic:
Conflict Resolution, Economics, and International Trade and Finance
Political Geography:
United States

423. Germany and the Future of the Transatlantic Economy

Author:
Jan Neutze and Philipa Tucker
Publication Date:
08-2005
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
A senior delegation from the Atlantic Council of the United States, led by W. Bowman Cutter and Paula Stern, visited key government, parliamentary, and private sector stakeholders in Frankfurt, Berlin, and Brussels in spring 2005. The delegation presented the findings of the Atlantic Council report, "The Transatlantic Economy in 2020: A Partnership for the Future?" to numerous business, government, and think tank audiences. This report summarizes the delegation's discussions.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States, Europe, Germany, and Berlin

424. A Currency Basket for East Asia, Not Just China

Author:
John Williamson
Publication Date:
08-2005
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
China recently announced that it is adopting a basket of currencies as the peg for its exchange rate instead of the US dollar. This announcement raises questions of how such a system works, whether other East Asian countries would be advised to follow China in adopting a basket numeraire, and whether it would be advantageous to these countries if they were all to adopt the same basket. This brief answers these questions.
Topic:
Economics, International Cooperation, and International Trade and Finance
Political Geography:
United States, Israel, East Asia, and Asia

425. Prospects for Regional Free Trade in Asia

Author:
Gary Clyde Hufbauer and Yee Wong
Publication Date:
10-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Frustrated with lackluster momentum in the WTO Doha Round and the Asia Pacific Economic Cooperation (APEC) forum, and mindful of free trade agreement (FTA) networks centered on the United States and Europe, Asian countries have joined the FTA game. By 2005, Asian countries (excluding China) had ratified 14 bilateral and regional FTAs and had negotiated but not implemented another seven. Asian nations are also actively negotiating some 23 bilateral and regional FTAs, many with non-Asian partners, including Australia, Canada, Chile, the European Union, India, and Qatar. China has been particularly active since 2000. It has completed three bilateral FTAs—Thailand in 2003 and Hong Kong and Macao in 2004—and is initiating another 17 bilateral and regional FTAs. However, a regional Asian economic bloc led by China seems distant, even though China accounts for about 30 percent of regional GDP. As in Europe and the Western Hemisphere, many Asian countries are pursuing FTAs with countries outside the region. On present evidence, the FTA process embraced with some enthusiasm in Asia, Europe, and the Western Hemisphere more closely resembles fingers reaching idiosycratically around the globe rather than politico-economic blocs centered respectively on Beijing, Brussels, and Washington.
Topic:
Economics, International Trade and Finance, and Regional Cooperation
Political Geography:
United States, China, Europe, Washington, Canada, India, Beijing, Asia, Australia, Qatar, Chile, Hong Kong, Brussels, and Macao

426. The US Trade Deficit: A Disaggregated Perspective

Author:
Catherine L. Mann and Katharina Plück
Publication Date:
09-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The paper prepares new estimates for the elasticity of US trade flows using bilateral, commodity-detailed trade data for 31 countries, using measures of expenditure and trade prices matched to commodity groups, and including a commodity-and-country specific proxy for global supply-cum-variety. Using the United Nations Commodity Trade Statistics Database (UN Comtrade) we construct bilateral trade flows for 31 countries in four categories of goods based on the Bureau of Economic Analysis's "end-use" classification system--autos, industrial supplies and materials-excluding energy, consumer goods, and capital goods. We find that using expenditure matched to commodity category yields more plausible values for the demand elasticities than does using GDP as the measure of demand that drives trade flows. Controlling for country and commodity fixed effects, we find that industrial and developing countries have demand elasticities that are statistically significant and that generally differ between development groups and across product categories. Relative prices for the industrial countries have plausible parameter values, are statistically significant and differ across product groups, but the relative prices for developing countries are poorly estimated. We find that variety is an important variable for the behavior of capital goods trade. Because the commodity composition of trade and of trading partners has changed dramatically, particularly for imports, we find that the demand elasticity for imports is not constant. Comparing the in-sample performance of the disaggregated model against a benchmark that uses aggregated data and GDP as the expenditure variable, our disaggregated model predicts exports better in-sample but does not predict imports as well as the benchmark model.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States

427. Importers, Exporters, and Multinationals: A Portrait of Firms in the U.S. that Trade Goods

Author:
J. Bradford Jensen, Peter K. Schott, and Andrew B. Bernard
Publication Date:
09-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper provides an integrated view of globally engaged US firms by exploring a newly developed dataset that links US international trade transactions to longitudinal data on US enterprises. These data permit examination of a number of new dimensions of firm activity, including how many products firms trade, how many countries firms trade with, the characteristics of those countries, the concentration of trade across firms, whether firms transact at arm's length or with related parties, and whether firms import as well as export. Firms that trade goods play an important role in the United States, employing more than a third of the US workforce. We find that the most globally engaged US firms, i.e. those that both export to and import from related parties, dominate US trade flows and employment at trading firms. We also find that firms that begin trading between 1993 and 2000 experience especially rapid employment growth and are a major force in overall job creation.
Topic:
Economics, Globalization, and International Trade and Finance
Political Geography:
United States

428. What Might the Next Emerging-Market Financial Crisis Look Like?

Author:
Morris Goldstein and Anna Wong
Publication Date:
07-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper addresses the following question: If a financial crisis affecting a group of emerging economies were to take place sometime over the next three years, where would the crisis likely originate, how could it be transmitted to other economies, and which economies would be most affected by particular transmission or contagion mechanisms? A set of indicators is presented to gauge the vulnerability of individual emerging economies to various shocks, including a slowdown in import demand in both China and the United States, a fall in primary commodity prices, increased costs and lower availability of external financing, alternative patterns of exchange rate changes, and pressures operating on monetary and fiscal policies in emerging economies.
Topic:
Economics, Emerging Markets, Globalization, and International Trade and Finance
Political Geography:
United States and China

429. Affinity and International Trade

Author:
Marcus Noland
Publication Date:
06-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines the impact of American public attitudes toward foreign countries on the volume of trade. The issue is whether popular attitudes, as elicited in these surveys, convey any information about trust, risk, or transactions costs beyond what can be explained through standard economic models. The results of this paper suggest that they do, with a one standard deviation increase in warmth of feeling associated with a 20 to 31 percent larger trade volume when evaluated at the sample means. These public attitudes are in turn correlated with indices of cultural affinity and political ideology. A one standard deviation increase in the democracy score is associated with a 5 to 7 percent increase in trade. There might be additional secondary effects if democratization was associated with an increased likelihood of the removal of sanctions or the initiation of preferential trade relations.
Topic:
Foreign Policy, Economics, and International Trade and Finance
Political Geography:
United States

430. The Euro and the World Economy

Author:
Fred Bergsten
Publication Date:
04-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The dollar has been the dominant currency of the world economy for almost a century for a single overwhelming reason: It had no competition. No other economy came close to the size of the United States. Hence no currency could acquire the network externalities, economies of scale and scope, and public goods benefits necessary to rival the dollar at the global level. A similar situation for the United Kingdom explains sterling's dominance in the 19th century.
Topic:
Economics and International Trade and Finance
Political Geography:
United States, United Kingdom, and Europe