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  • Author: Gary Clyde Hufbauer
  • Publication Date: 01-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States suffers from a severe self-inflicted wound. Together, federal and state governments impose almost the highest corporate tax rate found among advanced countries, 39 percent. Only Japan is fractionally higher. The high US rate has adverse consequences—lost investment, lost jobs, and less innovation—and goes a long way to explain slipping US competitiveness in the world economy.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Markets
  • Political Geography: United States, Japan
  • Author: Gary Clyde Hufbauer, Julia Muir
  • Publication Date: 01-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Legislation to reform Japan Post is again gathering steam in Tokyo. The real question is whether the latest act in this long- running drama will represent true reform or in fact will camouflage an entrenchment of Japan Post's formidable monopoly powers. Antireform proposals being lined up for consideration in the Diet would indefinitely extend effective government control of Japan Post's financial arms (thereby reversing the Koizumi era reforms). On the other hand, reform forces in the Japanese government want new legislation to guarantee a level playing field in banking and insurance between Japan Post and private firms, whether domestic or foreign.
  • Topic: Economics, Government, International Trade and Finance, Natural Disasters
  • Political Geography: Japan, Israel
  • Author: C. Fred Bergsten, Jacob Funk Kirkegaard
  • Publication Date: 01-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Doom and gloom about the euro abounds. An increasing number of commentators and economists, including here at the Peterson Institute, have begun to question whether the common currency can survive.
  • Topic: Economics, International Trade and Finance, Political Economy, Regional Cooperation, Financial Crisis
  • Political Geography: Europe
  • Author: William R. Cline
  • Publication Date: 02-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Contagion from Greece, together with domestic political uncertainty in Italy, caused interest rates on Italian sovereign debt to spike in the second half of 2011. As shown in figure 1, the risk spread above German bunds for 10-year Italian government bonds rose from 200 basis points in early July 2011, to a range of 300 to 400 basis points after the July 21 Greek package with its new emphasis on private sector involvement. There was a second surge to the 400 to 500 basis point range in November through January, following the October 27 Greek package that insisted on a 50 percent reduction in private sector claims.
  • Topic: Debt, Economics, Financial Crisis
  • Political Geography: Europe, Germany, Italy
  • Author: William R. Cline, John Williamson
  • Publication Date: 11-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In 2008 we introduced a semiannual series providing estimates of fundamental equilibrium exchange rates, or FEERs (Cline and Williamson 2008a). The economic concept of FEERs was first set forth by Williamson (1983). An operational method for arriving at multilaterally consistent estimates of FEERs was developed by Cline (2008) and has been applied over the past five years in this series of estimates. This issue marks the valedictory round of the series for Williamson, who is retiring.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: Europe, Lisbon
  • Author: Anders Åslund
  • Publication Date: 11-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Hyperinflation is one of the most misused words in the English language. Two years ago, I heard a prominent American investor say that we were about to get hyperinflation, “not 15 percent a year as under Jimmy Carter but perhaps 5 percent a year.” Hyperinflation is usually 1,000 percent or more a year. The standard definition by Philip Cagan (1956) is that hyperinflation starts when inflation reaches 50 percent a month, and then the economy is in hyperinflation for one year until monthly inflation falls and stays below 50 percent.
  • Topic: Economics, International Trade and Finance, Markets, Regional Cooperation, Monetary Policy
  • Political Geography: Europe
  • Author: Robert Z. Lawrence
  • Publication Date: 10-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: America deserves credit for not having succumbed to the global financial crisis by repeating the protectionist mistakes of the 1930s. Nonetheless, since 2007, although lip service has been paid to boosting US exports, its trade policy accomplishments have been modest. This is unfortunate because active trade policies can promote American living standards and facilitate America's return to full employment and sustained growth. These policies can also help to create a global trade order that advances American interests. This policy brief argues that the United States needs new initiatives that discipline foreign practices, increase access to foreign markets, revitalize the World Trade Organization (WTO), improve the administrative and regulatory environment for trade, and assist workers and communities adversely affected by change.
  • Topic: Economics, Globalization, International Trade and Finance, Markets, Global Recession, Monetary Policy, Financial Crisis
  • Political Geography: United States, America
  • Author: Anders Åslund
  • Publication Date: 08-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: One of the big questions of our time is whether the Economic and Monetary Union (EMU) will survive. Too often, analysts discuss a possible departure of one or several countries from the euro area as little more than a devaluation, but I argue that any country's exit from the euro area would be a far greater event with potentially odious consequences. Exit from the EMU cannot be selective: It is either none or all.
  • Topic: Economics, International Trade and Finance, Monetary Policy
  • Political Geography: Europe
  • Author: Joseph E. Gagnon Gagnon
  • Publication Date: 07-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Widespread currency manipulation, mainly in developing and newly industrialized economies, is the most important development of the past decade in international financial markets. In an attempt to hold down the values of their currencies, governments are distorting capital flows by around $1.5 trillion per year. The result is a net drain on aggregate demand in the United States and the euro area by an amount roughly equal to the large output gaps in the United States and the euro area. In other words, millions more Americans and Europeans would be employed if other countries did not manipulate their currencies and instead achieved sustainable growth through higher domestic demand.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: United States, America, Europe
  • Author: C. Fred Bergsten, Jacob Funk Kirkegaard
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Getting the diagnosis right is a prerequisite for understanding the euro area predicament and evaluating key decisions taken since early 2010. As we laid out in Bergsten and Kirkegaard (2012), while the euro area faces multiple overlapping and mutually reinforcing elements of fiscal (Greece), banking (Ireland/Spain), and competitiveness (Southern periphery) crises, it is first and foremost facing a crisis of institutional design. The common currency as designed in the Maastricht Treaty of 1992 is a half-built house without the critical components of banking and fiscal union necessary to sustain it through the type of crushing economic and financial down- turn witnessed since October 2008.
  • Topic: Economics, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: C. Fred Bergsten, Joseph E. Gagnon
  • Publication Date: 12-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: More than 20 countries have increased their aggregate foreign exchange reserves and other official foreign assets by an annual average of nearly $1 trillion in recent years. This buildup of official assets—mainly through intervention in the foreign exchange markets—keeps the currencies of the interveners substantially undervalued, thus boosting their international competitiveness and trade surpluses. The corresponding trade deficits are spread around the world, but the largest share of the loss centers on the United States, whose trade deficit has increased by $200 billion to $500 billion per year as a result. The United States has lost 1 million to 5 million jobs due to this foreign currency manipulation.
  • Topic: Economics, Globalization, International Cooperation, International Trade and Finance, World Trade Organization
  • Political Geography: United States
  • Author: Nicolas Véron
  • Publication Date: 12-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On June 29, 2012, the heads of state and government of the 17 euro area countries issued a landmark statement that started with the sentences “We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB [European Central Bank] for banks in the euro area the ESM [European Stability Mechanism] could, following a regular decision, have the possibility to recapitalize banks directly” (Euro Area Summit Statement 2012). This statement was received by the investor community and the European public as marking the initial step towards a European banking union, i.e., a shift of the key instruments of banking policy from the national to the European level to enable the formation and maintenance of an integrated European banking system.
  • Topic: Economics, Globalization, International Trade and Finance, Monetary Policy
  • Political Geography: Europe
  • Author: Anders Åslund
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the current financial crisis plaguing Europe, Latvia stands out for resolving its financial problems quickly and resolutely. After contracting 24 percent in 2008 and 2009, it grew at the rate of 5.5 percent in 2011. The speed and determination. with which the government carried out austerity measures in 2009 and restored confidence after suffering the worst output decline is a crucial lesson for the ailing South European countries—Greece, Italy, Portugal, and Spain. Many policy observers and economists have dismissed Latvia's crisis resolution as irrelevant to the situation in Southern Europe. The Latvian orange, they say, cannot be compared with the South European apples. I argue otherwise.
  • Topic: Economics, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Europe, Greece, Latvia
  • Author: Peter A. Petri
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Trans-Pacific Partnership (TPP), currently at an advanced stage of negotiation, began as a small agreement but now has big implications. The TPP would strengthen ties between Asia and the Americas, create a new template for the conduct of international trade and investment, and potentially lead to a comprehensive free trade area (FTA) in the Asia-Pacific. It could generate large benefits—greater than those expected from the World Trade Organization's (WTO) global Doha Development Agenda. This Policy Brief reports on our ongoing quantitative assessment (with FanZhai) of the TPP and other Asia-Pacific integration efforts.
  • Topic: Economics, Emerging Markets, International Trade and Finance, Treaties and Agreements
  • Political Geography: America, Europe, Israel, Asia, Australia/Pacific
  • Author: William R. Cline
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Halfway through this presidential election year, there is great uncertainty about how, when, and even whether the United States will restore fiscal sustainability. As shown by the near-default because of the impasse over the debt ceiling in July 2011, the two parties have been in sharp opposition on this issue. The Republicans have insisted that adjustment be accomplished by spending cuts rather than tax increases. Two hundred and thirty eight Republican congressmen and 41 Republican senators have signed the Grover Norquist pledge to oppose any attempt to raise marginal tax rates or reduce deductions without implementing offsetting tax reductions. In contrast, Democratic lawmakers have tended to emphasize the maintenance of social and entitlement programs and expressed a willingness to restore higher tax rates if necessary.
  • Topic: Economics, Monetary Policy, Financial Crisis, Governance, Law
  • Political Geography: United States
  • Author: William R. Cline, John Williamson
  • Publication Date: 05-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: This Policy Brief updates our estimates of fundamental equilibrium exchange rates (FEERs) to the latest available data. For exchange rates, we apply the average rates of April 2012, while for the International Monetary Fund's balance of payments forecasts, we use the April 2012 issue of the World Economic Outlook (henceforth WEO; see IMF 2012a). This study is the fifth in an annual series, begun in 2008, in which we have used the spring WEO as the basis for drawing out implications for exchange rate changes needed if the world is to approach a reasonably satisfactory medium-run position. In addition, in semiannual updates (most recently in November 2011), we have tracked interim changes in exchange rates but not reestimated the underlying FEERs for the year in question.
  • Topic: International Relations, Economics, Foreign Exchange, International Trade and Finance, Financial Crisis
  • Author: Gary Clyde Hufbauer, Martin Vieiro
  • Publication Date: 05-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The need for US corporate tax reform is blindingly obvious. Conservatives contend that the top corporate tax rate— whether measured in statutory or effective terms—is the second highest in the Organization for Economic Cooperation and Development (OECD). Liberals argue that the US corporate tax system is riddled with complex “loopholes,” enabling many firms—whether incorporated or not—to pay less than their fair share.
  • Topic: Economics, International Trade and Finance, Monetary Policy, Governance
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Julia Muir
  • Publication Date: 05-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Our last policy brief on this long-running saga recounted political machinations, late in 2011, to reverse the Koizumi era reforms of Japan Post, a giant among state-owned enterprises (SOEs). As a brief background: Japan Post is a conglomerate of five companies: the parent, Japan Post Holdings; two subsidiaries concerned with operating post offices and delivering mail, namely Japan Post Network and Japan Post Services; and two giant financial arms, Japan Post Bank and Japan Post Insurance.
  • Topic: Economics, International Trade and Finance, Treaties and Agreements, Law
  • Political Geography: Japan, Israel
  • Author: Gary Clyde Hufbauer, Jeffrey J. Schott
  • Publication Date: 05-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Our answer is a resounding “yes.” This answer does not rest simply on the World Trade Organization's proven competence as a judicial body nor its acknowledged expertise in gathering statistics and analyzing trends. Crowning these strengths, we see the dawn of a new era of trade and investment negotiations within the halls of the WTO.
  • Topic: Economics, International Trade and Finance, Treaties and Agreements, World Trade Organization
  • Author: Gary Clyde Hufbauer, J. Bradford Jensen
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Services trade continues to be the most dynamic part of world trade, and service sectors have long been the largest destination of foreign direct investment (FDI) flows. Higher GDP growth goes hand-in-hand with service sector growth. Yet, despite these positive attributes, little progress has been achieved in multilateral talks to liberalize services trade and investment. There is something very wrong about this picture—the disjuncture between stalled service negotiations in Geneva, the excessive focus on other components of the Doha Round to the neglect of services, and the rapid expansion of services trade and investment across borders. The time has come for an International Services Agreement (ISA) in which self-selected World Trade Organization (WTO) members voluntarily agree to new rules and market access commitments. The ISA would be distinct from a multilateral undertaking, like the Doha Round, that must gain the consent of all WTO members. Instead, it would be akin to the Agreement on Government Procurement, in which the market access benefits are confined to the agreement's members, but the agreement itself is open to all WTO members that are willing to accept its disciplines and commitments.
  • Topic: Economics, Emerging Markets, International Trade and Finance, Markets, World Trade Organization
  • Author: Gary Clyde Hufbauer, Sean Lowry
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In his 2012 State of the Union address, President Obama claimed that "over a thousand Americans are working today because we stopped a surge in Chinese tires." The tire tariff case, decided by the president in September 2009, exemplifies his efforts to get China to "play by the rules" and serves as a plank in his larger platform of insourcing jobs to America.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Governance
  • Political Geography: United States, China, America
  • Author: Adam S. Posen, Tomas Hellebrandt, Marilyne Tolle
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Active accommodation of fiscal consolidations by monetary policy is controversial, as can be seen in current euro area discussions. While many observers acknowledge that there is usually a place for monetary accommodation in response to fiscal consolidation, a sequencing argument is often heard today that fiscal commitment must precede any loosening. Some analysts go further to suggest that toughness by central banks taking a hard line on adjustment is critical to inducing sustained fiscal stabilization. This policy brief looks at the recent historical record of central bank behavior vis-à-vis fiscal authorities, at least until the current crisis period, and whether accommodative approaches ahead of consolidations have proven dangerous or helpful. The authors also try to assess the market credibility of fiscal consolidations as a function of the central banks' monetary stance prior to fiscal consolidation. They find clear evidence of positive associations between the degree of monetary ease in advance of fiscal consolidation programs and both those programs' success and their market credibility.
  • Topic: Economics, Markets, Monetary Policy, Financial Crisis, Governance
  • Author: William R. Cline
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For several years China has run persistent current account surpluses that have been widely seen as the most serious single source of global imbalances on the surplus side, and mirrored by persistent systemically large US current account deficits on the other side. In recent years, however, both imbalances have shown moderation (figure 1). China's surpluses have posed questions of international policy rules, because they have reflected in part an unwillingness to allow the exchange rate to appreciate sufficiently to act as an effective equilibrating mechanism. Exchange rate intervention resulted in a massive buildup of international reserves, which rose from $615 billion at the end of 2004 to $3.2 trillion at the end of 2011 (IMF 2012a).
  • Topic: Economics, Emerging Markets, Foreign Exchange, International Trade and Finance
  • Political Geography: United States, China, Israel
  • Author: Anders Åslund
  • Publication Date: 06-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the fall of 2008, Central and Eastern Europe became a flashpoint in the global financial crisis. The ten new eastern members of the European Union were in a state of severe overheating in all regards. Inflation surged everywhere and to double digits in Bulgaria, Estonia, Latvia, and Lithuania. Wages and real estate prices skyrocketed, rendering these countries ever less competitive, which further undermined their current account balance. Output plunged and unemployment soared.
  • Topic: Economics, Global Recession, Financial Crisis
  • Political Geography: Europe, Lithuania, Estonia, Bulgaria, Latvia
  • Author: Gary Clyde Hufbauer, Yee Wong
  • Publication Date: 06-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Facilitating trade is essential for countries that aspire to compete in the global economy. Low transactions costs, speed, and predictability are all ingredients of a good logistics system. The payoff is large. According to a World Bank (2010) evaluation of nearly 155 countries, improving logistics for countries at the same level of per capita income can increase GDP by 1 percent and two-way merchandise trade by 2 percent.
  • Topic: Economics, Emerging Markets, Globalization, International Trade and Finance
  • Author: Gary Clyde Hufbauer, Meera Fickling, Woan Foong Wong
  • Publication Date: 05-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States has experienced persistent trade deficits for decades, and thoughtful observers have concluded that deficits cannot be sustained at levels much exceeding 4 percent of GDP annually. There are only two ways to decrease the trade deficit: reduce imports or increase exports. For global economic health, increased exports are a far better proposition.
  • Topic: Economics, International Trade and Finance, Monetary Policy
  • Political Geography: United States
  • Author: William R. Cline, John Williamson
  • Publication Date: 05-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: This policy brief updates our estimates of fundamental equilibrium exchange rates (FEERs) to the latest available data, which for exchange rates are the average rates of April 2011, and for the IMF's balance of payments forecasts, those published in the April 2011 issue of World Economic Outlook (WEO; see IMF 2011a). It is the central study in what has now become a regular annual cycle, in which we draw out what we believe to be the implications of the IMF's forecasts for the pattern that exchange rates need to take if the world is to approach a reasonably satisfactory medium-run position. This past year we also published an interim policy brief (Cline and Williamson 2010b) in which we updated our calculations to the average exchange rates of October 2010, as well as commented on Brazilian Finance Minister Guido Mantega's description of international monetary events as constituting "currency wars." As in the previous year, however, the November 2010 policy brief updated our estimates only for intervening changes in market exchange rates. We did not make use of the IMF's revised autumn WEO forecasts to update our estimates of FEERs; on the contrary, we assumed the FEERs estimated in May 2010 were correct. In contrast, this policy brief presents totally new estimates of FEERs.
  • Topic: Economics, Monetary Policy
  • Political Geography: United States, China
  • Author: Edwin M. Truman
  • Publication Date: 05-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Reform of the international monetary system was placed on the agenda of the Group of 20 (G-20) a year ago at the initiative of the incoming French leadership of the G-20. On November 4, 2011 in Cannes, France, the G-20 leaders will announce their conclusions and agreements after a year and half of intense dialogue and debate. This policy brief summarizes my preliminary rating of the expected results based on the evidence to date: a barely passing grade on substance but an A for effort. Neither final grade is locked in stone, however.
  • Topic: Economics, International Cooperation, International Trade and Finance, International Monetary Fund, Monetary Policy, Financial Crisis
  • Political Geography: France
  • Author: Arvind Subramanian, Aaditya Mattoo, Francis Ng
  • Publication Date: 05-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The puzzle about the Doha Round of multilateral trade negotiations in the World Trade Organization (WTO) is not why it is on life support now but how it has survived as a viable multilateral initiative for so long. From the very beginning, it was clear that the Round suffered from a lack of private-sector interest, the engine that had driven previous rounds of successful trade negotiations. At most, Doha promised to deliver some security of access for unilateral liberalization previously undertaken by countries and some modest incremental market opening (Martin and Mattoo 2009; Hufbauer, Schott, and Wong 2010). That the Round had much to be modest about was reflected in the failure of even antiglobalization protesters to show up for the more recent meetings of the Doha Round.
  • Topic: Economics, Globalization, International Trade and Finance, Markets
  • Political Geography: China
  • Author: Gary Clyde Hufbauer, Woan Foong Wong
  • Publication Date: 04-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In his State of the Union address, President Barack Obama stressed four ingredients of American prosperity: faster innovation, better education, less deficit, and more jobs. As the president recognized in his address, the US free enterprise system drives the private sector to innovate, invest, and create jobs. This policy brief concentrates on how reforming the corporate tax system can strengthen the private sector, thereby spurring both innovation and job.
  • Topic: Economics, Globalization, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: United States
  • Author: John Williamson
  • Publication Date: 01-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The world has witnessed two distinct attempts to build a multilateral mechanism to discipline surplus countries that declined to adjust their surpluses, and several proposals are currently on the table to do the same. On the two previous occasions the major surplus country of the day defeated attempts to create such a mechanism, and today China (not to mention Japan or Germany) exhibits no enthusiasm for the idea. Despite the importance of the issue, there has been remarkably little discussion of these proposals.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Monetary Policy
  • Political Geography: Japan, China, Germany
  • Author: Edwin M. Truman, Sarah Bagnall
  • Publication Date: 08-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On July 7, 2011 the International Forum of Sovereign Wealth Funds (IFSWF) released a report on IFSWF Members' Experience in the Application of the Santiago Principles. The report is a self-assessment of the voluntary compliance of 21 member sovereign wealth funds (SWFs) with the Generally Accepted Principles and Practices of SWFs, issued in October 2008. We commend the IFSWF for undertaking the surveys on which the report is based, for the later decision to publish the results, and for the detail included in the report. However, as with many self-assessments, the report has some flaws. The principal flaw is that the characterization of the extent of compliance with the Santiago Principles is exaggerated.
  • Topic: Economics, International Trade and Finance, Markets, Sovereign Wealth Funds
  • Political Geography: Santiago
  • Author: Simon Johnson, Peter Boone
  • Publication Date: 07-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Attempts to resolve the problems in Europe are failing, and the crisis is spreading from Greece, Ireland, and Portugal to larger nations. Europe's financial system relies on moral hazard, i.e., a “no defaults” policy, to attract the funding needed to roll over large amounts of short–term bank and sovereign debt. Now that politicians in creditor nations are calling for private sector burden sharing, investors are demanding higher interest rates to hold these debts. But higher rates may tip banks and nations toward bankruptcy. Europe's banks and financial system are highly integrated across countries. Rising expectations of default in some countries could lead to large-scale capital flight into “safe” countries. This shift will raise concerns regarding solvency and liquidity of many financial institutions. The payments system of the euro area is serving as an opaque bailout mechanism that is currently preventing the euro area from falling apart at this time. If the number of nations in trouble spreads beyond Greece, Ireland, and Portugal, this bailout system will be stressed because of the potential size of accumulated funding. The European Central Bank (ECB) could soon see a vocal debate between inflationist and hawkish (anti–inflation) members. Inflationists will call for large–scale interventions, including bond buybacks and emergency loans, while the hawks will attempt to close loopholes in the payments system that effectively permit each troubled nation to create money needed to finance capital flight and budget deficits. At this stage in the debate, we see little chance that Europe can avoid ending the “moral hazard” regime, in which case it needs to plan for widespread sovereign and bank debt restructurings.
  • Topic: Debt, Economics, Regional Cooperation, Financial Crisis
  • Political Geography: Europe, Greece, Ireland
  • Author: Cullen S. Hendrix
  • Publication Date: 07-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the past four years, rising world food prices and the global economic downturn increased the ranks of the world's food insecure1 from 848 million to 925 million by September 2010, reversing decades of slow yet steady progress in reducing hunger (WFP and FAO 2010). While the human costs have been considerable, the political consequences have been significant as well. Food prices sparked demonstrations and riots in 48 countries 2007–08. While prices receded in 2009, they reached historic highs in February 2011—and were once again implicated in political turmoil. High food and fuel prices were among the grievances motivating the demonstrations that led to the ouster of Tunisian President Zine El Abidine Ben Ali and Egyptian President Hosni Mubarak.
  • Topic: Agriculture, Economics, International Trade and Finance, Poverty, Food
  • Political Geography: Ethiopia, Egypt
  • Author: Jeffrey J. Schott
  • Publication Date: 06-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Doha Round of multilateral trade negotiations in the World Trade Organization (WTO) remains stalled despite the political impetus provided by the Seoul G-20 Summit in November 2010. The major trading nations have not revised their positions enough to propel new negotiations on agriculture, manufactures, and services. There is now little chance to complete an agreement this year and little indication that current efforts could succeed next year.
  • Topic: Economics, International Cooperation, International Trade and Finance
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Martin Vieiro
  • Publication Date: 10-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States holds contradictory views about large corporations. When Americans speak of breakthroughs in research and engineering, they are justly proud of large firms that pioneered railroads and steam engines in the 19th century, automobiles, electric power, and oil exploration in the 20th century, and computers, software, and biotechnology in the 21st century. Yet when talk turns to paying taxes, public opinion holds that large corporations should pay a higher statutory tax rate than other business firms, and enjoy fewer deductions in computing their taxable income. Despite common sense and the teachings of economics, tax discrimination is alive and well.
  • Topic: Economics, Globalization, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: United States, America
  • Author: William R. Cline
  • Publication Date: 10-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On July 21, 2011, the heads of government of the euro area announced a new plan to address the Greek debt crisis. This policy brief presents a simulation exercise that examines whether the new arrangements are likely to provide a sustainable solution. The analysis focuses on four key measures: gross debt relative to GDP; net debt relative to GDP; net interest payments relative to GDP; and amortization of medium-and long-term debt coming due during the year in question, relative to GDP. The new Greek package shows prospective future progress on all four measures, and Greek debt looks much more sustainable after the package than before. Debt also appears considerably more manageable if the criterion is net debt or interest burden rather than gross debt ratio, although even for gross debt the ratio is down substantially by 2020. It also becomes clear that the major contribution of the private-sector involvement (PSI) part of the package is in the form of sharply cutting amortization due, although by avoiding large new borrowing at crisis-level interest rates it also alleviates the interest burden that would otherwise occur.
  • Topic: Debt, Economics, Regional Cooperation, Financial Crisis
  • Political Geography: Europe, Greece
  • Author: Nicolas Véron
  • Publication Date: 11-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Credit Rating Agencies (CRAs) are prominent participants in the assessment of credit risk by financial markets. They determine and publish credit ratings, which represent the CRA's opinions on issuers' relative probability of default. The market for credit ratings is currently dominated in most western countries by three players: n Standard Poor's (S) is a division of the McGraw- Hill Companies, a US-based media group whose ownership is dispersed (the largest shareholder is Capital Group, with 12 percent of shares); n Moody's Corporation is an autonomous US-based listed company with dispersed ownership (the largest shareholder is Berkshire Hathaway, with 12.5 percent of shares); n Fitch Ratings is a division of the Fitch Group which is jointly owned by Fimalac, a Paris-based listed investment vehicle (60 percent of shares), and the US-based Hearst Corporation (40 percent of shares).
  • Topic: Debt, Economics, Globalization, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Anders Åslund
  • Publication Date: 11-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: After 18 years, Russia is finally on the verge of acceding to the World Trade Organization (WTO). No country has struggled for so long to become a member of this important organization. The last impediment was removed on November 9, when Russia and Georgia concluded an agreement on monitoring trade flows across their disputed border. The WTO Working Party, which oversaw the negotiations, then approved Russian accession on November 10, clearing the way for formal membership to be adopted at the WTO ministerial conference to be held December 15–17, 2011 (WTO 2011).
  • Topic: Conflict Resolution, Economics, International Trade and Finance, Markets, Bilateral Relations
  • Political Geography: Russia, United States, Georgia
  • Author: Edwin M. Truman
  • Publication Date: 11-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: With great French fanfare the G-20 committed itself in Seoul, Korea a year ago “to build a more stable and resilient international monetary system (IMS), including by further strengthening global financial safety nets.” As subsequently elaborated by French President Sarkozy and other French government officials, the agenda for IMS reform included five elements: surveillance of the global economy and financial system, the international lender-of-last-resort mechanisms (global financial safety nets), the management of global capital flows, reserve assets and reserve currencies, and IMS governance.
  • Topic: Economics, Globalization, International Trade and Finance, Markets, International Monetary Fund
  • Political Geography: Korea
  • Author: William R. Cline, John Williamson
  • Publication Date: 11-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The currency markets have been extremely disturbed for the last three months. The period witnessed a major strengthening of the US dollar in September, then the European currency crisis, a recovery of the euro when the markets believed that the crisis was being controlled, and then a rebound of the dollar. In view of these developments, those who follow currency movements need a new guide as to how the current values of currencies compare to our estimates of fundamental equilibrium exchange rates (FEERs). That is the main object of this paper.
  • Topic: Economics, Globalization, International Political Economy, Monetary Policy
  • Political Geography: United States, Europe
  • Author: John Williamson, Mohsin S. Khan
  • Publication Date: 11-2011
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The current government of Egypt has frequently stated that external financial assistance is necessary in the present economic situation and has expressed a strong preference for receiving it in part via debt relief. The question asked in this policy brief is whether there is a case for debt relief and if so what form this relief should take. This policy brief reviews a number of cases in which debt relief has been granted to draw out the lessons and implications for Egypt.
  • Topic: Debt, Economics, Regime Change, Popular Revolt
  • Political Geography: Arabia, Arab Countries, North Africa, Egypt
  • Author: Morris Goldstein
  • Publication Date: 02-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: When pondering desirable reforms, I prefer to think about both the international financial system and the international monetary system because as this global crisis demonstrates so vividly, the root causes can come from both the financial and the monetary spheres and they can interact in a variety of ways. On the financial side, I want to emphasize two problems: pricking asset price bubbles before they get too large, and confronting “too big to fail.” On the monetary side, I want to concentrate on what can be done to discourage “beggar-thyneighbor” exchange rate policies.
  • Topic: Economics, Monetary Policy, Financial Crisis
  • Author: Nicholas R. Lardy
  • Publication Date: 03-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: China's policy response to the global financial and economic crisis was early, large, and well-designed. Although Chinese financial institutions had little exposure to the toxic financial assets that brought down many large Western investment banks and other financial firms, China's leadership recognized that its dependence on exports meant that it was acutely vulnerable to a global recession. Thus they did not subscribe to the view sometimes described as “decoupling,” the idea that Asian countries could passively weather the financial storm that originated in the United States and other advanced industrial economies. They understood that absent a vigorous policy response China inevitably would suffer from the backwash of a sharp economic slowdown in its largest export markets—the United States and Europe.
  • Topic: Economics, Financial Crisis
  • Political Geography: United States, China, Europe, Asia
  • Author: William R. Cline, John Williamson
  • Publication Date: 01-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In June 2009 we issued our annual update of estimates of fundamental equilibrium exchange rates (FEERs) for 34 major economies (Cline and Williamson 2009). At that time the dollar had already begun correction from the substantial overvaluation that had arisen from the strong safe-haven effect associated with the global financial crisis of 2008–09. In this policy brief we report on changes in disequilibria in the exchange markets since the date those earlier calculations referred to, namely March 2009. We first present estimates of the extent of movement toward FEER-consistent bilateral dollar exchange rates from March to December 31, 2009, and then look at how effective exchange rates have altered in the same period. We also re-estimate the FEER-consistent dollar rate for one important currency, the Korean won.
  • Topic: Economics, Foreign Exchange, International Political Economy, Monetary Policy
  • Political Geography: Korea
  • Author: Arvind Subramanian
  • Publication Date: 04-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Is there reason to add to the proliferating set of estimates on the extent of renminbi undervaluation (see among others, Bergsten 2010; Cline and Williamson 2008 and 2010; Goldstein and Lardy 2008 and 2009; Frankel 2008; Reisen 2009; and Lee et al. 2008)? Yes, not least because these new estimates: (1) suggest that purchasing power parity (PPP)-based approaches to measuring renminbi undervaluation suggest that China's currency is undervalued by about 30 percent against the dollar and not the 12 percent recently reported (Bajaj 2010); and (2) are closer to and consistent with alternative approaches to estimating renminbi undervaluation.
  • Topic: Economics, Foreign Exchange, International Political Economy, Monetary Policy
  • Political Geography: China
  • Author: Peter B. Kenen
  • Publication Date: 03-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Today, the international monetary system is based largely on the US dollar, but reserve currency diversification has begun, thanks to the advent of the euro, and it is apt to continue. Eventually, the renminbi could acquire reserve currency status, and the resulting reserve currency diversification could be more disruptive than it has been to date. To forestall that possibility the quasi-currency issued by the International Monetary Fund (IMF), Special Drawing Rights (SDRs), could be made to play a larger role in the international monetary system, precluding potentially disruptive diversification and achieving more orderly growth in the stock of international reserves.
  • Topic: Economics, International Political Economy, International Trade and Finance, Monetary Policy
  • Political Geography: United States
  • Author: Stephan Haggard, Marcus Noland
  • Publication Date: 01-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On November 30, 2009, North Korea announced a reform to replace all currency in circulation with new bills and coins. North Korean officials have made no bones about their motivations: The “reform” constitutes a direct attack on the emerging market economy and the independence from state control that it represents. In an interview following the conversion, an official of the North Korean central bank noted that the reform was aimed at curbing private trade and underlined that North Korea is “not moving toward a free market economy but will further strengthen the principle and order of socialist economic management.”
  • Topic: Economics, Markets, Monetary Policy
  • Political Geography: North Korea
  • Author: Jeffrey J. Schott, Meera Fickling
  • Publication Date: 07-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: A year ago, we wrote a policy brief titled Setting the NAFTA Agenda on Climate Change, which explored issues of energy and environmental cooperation among the three North American countries in light of the climate legislation that had recently passed the US House of Representatives. Similar legislation did not pass the Senate, and Congressional leaders are now considering much more modest measures aimed at reducing greenhouse gas (GHG) emissions and reforming US energy policy.
  • Topic: Climate Change, Economics, International Trade and Finance, Treaties and Agreements
  • Political Geography: United States, North America
  • Author: Olivier Jeanne
  • Publication Date: 07-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The set of tools and mechanisms with which emerging-market countries insure themselves against volatile capital flows is in a state of flux. Most emerging-market countries had accumulated an unprecedented level of international reserves before the global financial crisis that started in 2008. The crisis itself led to a large increase in International Monetary Fund (IMF) resources and the introduction of a new lending facility, the Flexible Credit Line (FCL). Meanwhile, some progress was made toward transforming the Chiang Mai Initiative into an Asian Monetary Fund, and the Greek debt crisis even prompted calls for the creation of a European Monetary Fund.
  • Topic: Development, Economics, Emerging Markets, Markets, Foreign Direct Investment