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  • Author: Dan Magder
  • Publication Date: 11-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Mortgage defaults and home foreclosures remain a growing problem that undermines the nascent US economic recovery. Delinquencies continue to skyrocket, up 300 percent since the beginning of the crisis, and the contagion has spread to prime loans where delinquencies have risen to over 11 percent of outstanding loans. The resulting foreclosures have broad consequences: Individuals lose their homes, banks take losses on the loans, neighbors suffer as area prices go down, and localities lose on property taxes. The economics of modifying loans to avoid defaults appear strong: Lenders lose an average of $145,000 during a foreclosure compared with less than $24,000 on a modified loan. Yet the track record of modification programs has been surprisingly poor. Potential lawsuits over modifying loans in securitization trusts may be a less important obstacle than many claim. More significant are misaligned incentives that put mortgage servicers in opposition to both investors and borrowers, conflicts between investors holding different tranches of mortgage-backed securities (MBS), operational impediments, and problems in loan modification design that contribute to redefaults. Policymakers should improve reporting metrics to highlight servicers' conflicts of interest, shift the emphasis of loan modifications from short-term fixes to making the new loans more sustainable, and use government resources to drive operational/capacity improvements in the industry.
  • Topic: Economics, Markets, Financial Crisis
  • Author: Olivier Jeanne, Pierre-Olivier Gourinchas
  • Publication Date: 11-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The textbook neoclassical growth model predicts that countries with faster productivity growth should invest more and attract more foreign capital. We show that the allocation of capital flows across developing countries is the opposite of this prediction: capital seems to flow more to countries that invest and grow less. We then introduce wedges into the neoclassical growth model and find that one needs a saving wedge in order to explain the correlation between growth and capital flows observed in the data. We conclude with a discussion of some possible avenues for research to resolve the contradiction between the model predictions and the data.
  • Topic: Economics, International Trade and Finance, Foreign Direct Investment
  • Author: Morris Goldstein, Daniel Xie
  • Publication Date: 11-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper analyzes how the global financial crisis has affected emerging Asia and identifies key characteristics that have made these economies more or less vulnerable to a transmission of crises from the advanced economies. After reviewing how economic outcomes in emerging Asia have evolved since the crisis began in the summer of 2007, we review several studies of the effect of financial stress and/or growth slowdown in advanced economies on emerging Asia. We then discuss how emerging Asia is “different” in ways that matter for the contagion of crises, with the emphasis on currency and maturity mismatches, the nature of the region's foreign trade links (product composition, the geographic pattern of trade, and the degree of net export-led growth), financial market integration with the advanced economies, and the scope for implementing countercyclical monetary and fiscal stimulus.
  • Topic: Economics, Financial Crisis
  • Political Geography: Asia
  • Author: Christopher D. Carroll, Olivier Jeanne
  • Publication Date: 10-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: We model the motives for residents of a country to hold foreign assets, including the precautionary motive that has been omitted from much previous literature as intractable. Our model captures many of the principal insights from the existing specialized literature on the precautionary motive, deriving a convenient formula for the economy's target value of assets. The target is the level of assets that balances impatience, prudence, risk, intertemporal substitution, and the rate of return. We use the model to shed light on two topical questions: The “upstream” flows of capital from developing countries to advanced countries, and the long-run impact of resorbing global financial imbalances.
  • Topic: Economics, International Trade and Finance, Sovereign Wealth Funds
  • Author: Stephan Haggard, Marcus Noland
  • Publication Date: 09-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The state is often conceptualized as playing an enabling role in a country's economic development—providing public goods, such as the legal protection of property rights, while the political economy of reform is conceived in terms of bargaining over policy among elites or special interest groups. We document a case that turns this perspective on its head: efficiency-enhancing institutional and behavioral changes arising not out of a conscious, top-down program of reform, but rather as unintended (and in some respects, unwanted) by-products of state failure. Responses from a survey of North Korean refugees demonstrate that the North Korean economy marketized in response to state failure with the onset of famine in the 1990s, and subsequent reforms and retrenchments appear to have had remarkably little impact on some significant share of the population. There is strong evidence of powerful social changes, including increasing inequality, corruption, and changed attitudes about the most effective pathways to higher social status and income. These assessments appear to be remarkably uniform across demographic groups. While the survey sample marginally overweights demographic groups with less favorable assessments of the regime, even counterfactually recalibrating the sample to match the underlying resident population suggests widespread dissatisfaction with the North Korean regime.
  • Topic: Development, Economics, Fragile/Failed State
  • Political Geography: North Korea
  • Author: Arvind Subramanian, Aaditya Mattoo
  • Publication Date: 08-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Th is paper documents an unusual and possibly significant phenomenon: the export of skills embodied in goods, services, or capital from poorer to richer countries. We fi rst present a set of stylized facts. Using a measure that combines the sophistication of a country's exports with the average income level of destination countries, we show that the performance of a number of developing countries, notably China, Mexico, and South Africa, matches that of much more advanced countries, such as Japan, Spain, and the United States. Creating a new combined dataset on foreign direct investment (FDI) (covering greenfi eld investments as well as mergers and acquisitions) we show that fl ows of FDI to Organization for Economic Cooperation and Development (OECD) countries from developing countries like Brazil, India, Malaysia, and South Africa as a share of their GDP are as large as fl ows from countries like Japan, Korea, and the United States. Th en, taking the work of Hausmann et al. (2007) as a point of departure, we suggest that it is not just the composition of exports but their destination that matters. In both cross-sectional and panel regressions, with a range of controls, we fi nd that a measure of uphill fl ows of sophisticated goods is signifi cantly associated with better growth performance. Th ese results suggest the need for a deeper analysis of whether development benefi ts might derive not from deifying comparative advantage but from defying it.
  • Topic: Economics, Globalization, Foreign Direct Investment
  • Political Geography: China, South Africa, Mexico
  • Author: Matthew Adler, Gary Clyde Hufbauer, Jeffrey J. Schott, Claire Brunel
  • Publication Date: 08-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The Doha Round is the longest-running trade liberalization negotiation in the postwar era. Despite its longevity, the end is not yet in sight as parties disagree on the depth of liberalization necessary in agriculture and nonagricultural market access (NAMA). This rift is prolonging the Round's completion and hindering the discussion of other important issues on the negotiating agenda, particularly services. To shed light on the debate concerning the benefits from Doha, this paper first estimates, using three metrics, the potential gains from liberalization in agriculture and NAMA resulting from the specific “modalities” set forth in papers drafted by the chairs of the Doha negotiating groups. Next, the study estimates the benefits that could result from sector initiatives in chemicals, electronic/electrical goods, and environmental goods that go beyond the tariff cuts outlined in the negotiating modalities. Finally, prospective gains from liberalization of services barriers and improvements in trade facilitation are also analyzed. Overall, we estimate that the boost to global exports from concluding the Doha Round could range between $180 billion and $520 billion annually. Likewise, the potential GDP gains are significant, between $300 billion and $700 billion annually, and well balanced between developed and developing countries.
  • Topic: Agriculture, Economics, International Trade and Finance
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 08-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Th is paper expands on the methodology of Groshen and Potter (2003) for studying cyclical and structural changes in the US economy and analyzes the net structural and cyclical employment trends in the US economy during the last 10 trough-to-trough business cycles from 1949 to the present. It illustrates that the US manufacturing sector and an increasing number of services sectors, including parts of the fi nancial services sector, are experiencing structural employment declines. Structural employment gains in the US labor market are increasingly concentrated in the healthcare, education, food, and professional and technical services sectors and in the occupations related to these industries. Th e paper concludes that the improved operation of the US labor market during the 1990s has reversed itself in the 2000s, with negative long-term economic eff ects for the United States.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: Stephan Haggard, Marcus Noland
  • Publication Date: 07-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: As a small country dependent on foreign trade and investment, North Korea should be highly vulnerable to external economic pressure. In June 2009, following North Korea's second nuclear test, the UN Security Council passed Resolution 1874, broadening existing economic sanctions and tightening their enforcement. However, an unintended consequence of the nuclear crisis has been to push North Korea into closer economic relations with China and other trading partners that show little interest in cooperating with international efforts to pressure North Korea, let alone in supporting sanctions. North Korea appears to have rearranged its external economic relations to reduce any impact that traditional sanctions could have.
  • Topic: Economics, International Trade and Finance, Sanctions
  • Political Geography: China, North Korea, United Nations
  • Author: Theodore H. Moran
  • Publication Date: 07-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The 2008 election rekindled debate about whether US multinationals shift technology across borders and relocate production in ways that might harm workers and communities at home. President Obama now pledges to end tax breaks for corporations that ship jobs overseas. The preoccupation about the behavior of American multinationals takes three forms: (1) that US-based multinational corporations may follow a strategy that leads them to abandon the home economy, leaving the workers and communities to cope on their own with few appealing alternatives after the multinationals have left; (2) worse, that US-based multinational corporations may not just abandon home sites but drain off capital, substitute production abroad for exports, and “hollow out” the domestic economy in a zero-sum process that damages those left behind; and (3) worst, that US-based multinational corporations may deploy a rent-gathering apparatus that switches from sharing supranormal profits and externalities with US workers and communities to extracting rents from the United States. Each of these concerns contains a hypothetical outcome that can be compared with contemporary evidence from the United States and other home countries.
  • Topic: Economics, International Political Economy, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: United States, America
  • Author: Edwin M. Truman
  • Publication Date: 12-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The International Monetary Fund (IMF) plays a substantial regulatory role in the international monetary and financial system. The IMF has been assigned a formal regulatory role in a limited number of areas such as obligations covering exchange rate policies. The Fund has a broader informal regulatory role derived from the voluntary consent of its members such as in surveillance over members' financial sector policies and international payments imbalances. The IMF's regulatory role is unlike that of its member governments within their own jurisdictions. The Fund's formal and informal regulation must be constantly nurtured and renewed via peer-review processes.
  • Topic: Debt, Economics, International Organization, International Trade and Finance, International Monetary Fund, Monetary Policy
  • Author: Arvind Subramanian, Aaditya Mattoo, Dominique van der Mensbrugghe, Jianwu He
  • Publication Date: 12-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: There is growing clamor in industrial countries for additional border taxes on imports from countries with lower carbon prices. While this paper confirms the findings of other research that unilateral emissions cuts by industrial countries will have minimal carbon leakage effects, output and exports of energy-intensive manufactures are projected to decline, potentially creating pressure for trade action. A key factor affecting the impact of any border taxes is whether they are based on the carbon content of imports or the carbon content of domestic production. The paper's quantitative estimates suggest that the former action when applied to all merchandise imports would address competitiveness and environmental concerns in high income countries but with serious consequences for trading partners. Border tax adjustment based on the carbon content in domestic production would broadly address the competitiveness concerns of producers in high income countries and less seriously damage developing country trade.
  • Topic: Climate Change, Economics, Energy Policy, Environment, International Trade and Finance
  • Political Geography: China
  • Author: Jacob Funk Kirkegaard, Thilo Hanemann, Lutz Weischer
  • Publication Date: 12-2009
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This working paper maps out the structure and value chains of the wind industry, analyzes the wind industry's increasing global integration via cross-border trade and investment flows, and offers recommendations to policymakers for the design of investment and trade policies to help realize wind energy's potential. We find that demand for wind energy through long-term government support policies creates the basis for local supply of wind capital equipment and services and associated local job creation; policies that put a price on carbon will further help to make wind energy more competitive and increase the overall demand for turbines and equipment. Cross-border investment rather than trade is the dominant mode of the wind industry's global integration. Principal barriers to global integration are nontariff trade barriers and formal and informal barriers that distort firms' investment decisions. These include local content requirements, divergent national industrial standards and licensing demands, and in particular political expectations. Intellectual property accounts for only a very small part of cost in the wind industry, and wind technology is widely available for licensing. Intellectual property rights are correspondingly not a major impediment for market participation. Credible long-term commitments coupled with a reduction or elimination of existing barriers to cross-border trade and investment are necessary to harness the full potential of global integration in reducing wind industry prices and increase worldwide deployment of wind energy.
  • Topic: Economics, Energy Policy, Environment, Foreign Direct Investment
  • Author: C. Randall Henning
  • Publication Date: 02-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In September 1997, at the outset of the last global financial crisis, the Japanese Ministry of Finance proposed the creation of an Asian Monetary Fund. Although this particular proposal was scuttled, the idea of a common regional fund on which East Asian governments might draw in times of financial turmoil survives. The region's disaffection from the International Monetary Fund (IMF), stemming from the 1997–98 crisis, sustains this idea and a desire on the part of individual countries to self-insure with large holdings of foreign exchange reserves. East Asian governments and central banks have created a set of bilateral swap arrangements (BSAs) dubbed the Chiang Mai Initiative (CMI) and are negotiating among themselves to build these BSAs into a more comprehensive facility. Some Asian officials hope that such a facility could underpin exchange rate cooperation and monetary integration in the region, although such proposals remain for the moment long-term visions.
  • Topic: Economics, International Cooperation, International Trade and Finance, Regional Cooperation, Financial Crisis
  • Political Geography: Japan, Israel, Asia
  • Author: Gary Clyde Hufbauer, Claire Brunel
  • Publication Date: 02-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: As the financial crisis threatens to lead to a depression, the woes of the automobile industry are second only to the distress of the financial sector. Employment in the US auto industry dropped 9 percent between 2007 and 2008, with much more to follow in 2009. Overall, US auto sales dropped 18 percent between 2007 and 2008, and sales of SUVs plunged 44 percent on a year-over-year basis. Since some sort of financing is required for 90 percent of US car sales, the global credit freeze hit the auto industry with a second blow.
  • Topic: Economics, International Political Economy, International Trade and Finance, Poverty, Financial Crisis
  • Political Geography: United States
  • Author: Trevor Houser, Shashank Mohan, Robert Heilmayr
  • Publication Date: 02-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: As the 111th Congress begins and a new president takes office, the economic crisis dominates the US policy agenda. The financial system remains in a tenuous state despite massive bank recapitalization, and the economy, more than a year into the current recession, shows no signs of recovery. Given the scale of the challenge Washington faces and the amount of money required to combat it, there will likely be little room for other legislative priorities. As a result, policymakers are hoping to direct government spending over the next two years in a way that not only generates short-term economic growth and employment but also addresses long-term policy goals sidelined by the current crisis.
  • Topic: International Relations, Climate Change, Economics, Environment, International Political Economy, International Trade and Finance
  • Political Geography: United States
  • Author: Gary Clyde Hufbauer, Jeffrey J. Schott
  • Publication Date: 02-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On January 28, 2009, the US House of Representatives passed its economic stimulus plan, the American Recovery and Reinvestment Act of 2009. Out of the bill's 700 text pages, a small half-page section attracted enormous media attention: the section requiring that all public projects funded by the stimulus plan must use only iron and steel produced in the United States (box 1). Another provision, which drew less attention, extends the so-called Berry Amendment (an old Buy American provision) to uniforms purchased by the Department of Homeland Security.
  • Topic: Economics, Globalization, Government, Industrial Policy, International Political Economy, International Trade and Finance, International Affairs
  • Political Geography: United States
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 01-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: It is generally believed that the United States is a country of low taxes and small government, at least when compared with countries in Europe (and until the financial crisis so greatly expanded the role of the federal government in the United States in late 2008). Fully accounting for the role, size, and effect of the government in an economy is a complex endeavor, however, and it is hardly accomplished by repeatedly restating differences in top marginal tax rates, overall tax burdens, or gross sizes of governments in GDP terms.
  • Topic: Economics, Government, Political Economy, Privatization
  • Political Geography: United States, Europe
  • Author: Gary Clyde Hufbauer, Jisun Kim
  • Publication Date: 03-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: As the administration and Congress catch their breath from rescuing the economy, their thoughts are quickly turning to other issues—including the structure of the US tax system. Everyone agrees that the US tax system inflicts enormous complexity on the American public. But reform is never easy. Who pays the tax burden ranks among the most contentious issues that Congress has historically faced, and this time around will be no different.
  • Topic: Economics, International Trade and Finance, Financial Crisis
  • Political Geography: United States
  • Author: Anders Åslund, Andrew Kuchins
  • Publication Date: 03-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Whither Russia? Russia's economic circumstances as well as its articulated goals hold the answer to this eternal question. Drawing on our analysis in the forthcoming book The Russia Balance Sheet, we outline here a policy approach for the Barack Obama administration. We believe our views reflect to some degree an emerging consensus for the new administration's Russia policy. Russia is important for US foreign policy in many ways. The United States needs a more constructive relationship with Russia to address many core global security issues including nuclear security and nonproliferation, terrorism, energy, and climate change.
  • Topic: International Relations, Foreign Policy, Economics
  • Political Geography: Russia, United States
  • Author: Jeffrey J. Schott, Meera Fickling
  • Publication Date: 08-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: When the North American Free Trade Agreement (NAFTA) entered into force 15 years ago, environmental issues were an afterthought appended to a side accord, the North American Agreement on Environmental Cooperation (NAAEC). Today, environmental problems loom large on the global agenda, and climate change, in particular, ranks among the top issues on the North American agenda as the leaders of the United States, Canada, and Mexico convene in Guadalajara in August 2009. This policy brief examines the implications for NAFTA of national policies in the three countries to reduce greenhouse gas (GHG) emissions and suggests steps that the partner countries can take together to further both their economic and environmental goals.
  • Topic: Climate Change, Economics, Globalization, International Trade and Finance
  • Political Geography: Canada, North America, Mexico
  • Author: Trevor Houser
  • Publication Date: 08-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: At the 2008 summit in Hokkaido, Japan, and again in 2009 in L'Aquila, Italy, G-8 leaders called for a 50 percent global reduction in greenhouse gas (GHG) emissions below current levels by 2050 to avoid “the most serious consequences of climate change.” Meeting this goal will require transforming the way energy is produced, delivered, and consumed across all sectors of the economy and regions of the world. Buildings, which account for nearly 40 percent of global energy demand today and 30 percent of projected growth in energy demand between now and 2050, will play a critical role in this process (IEA 200).
  • Topic: Climate Change, Economics, Energy Policy
  • Political Geography: Japan, Italy
  • Author: Mohsin S. Khan
  • Publication Date: 07-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Many previous attempts to improve economic ties between India and Pakistan unfortunately have been derailed by periodically heightened political tensions between the two countries—be it Kargil in May 1999, the terrorist attack on the Indian Parliament in December 2001, or most recently, the Mumbai attacks in November 2008. Although successive Indian and Pakistani governments have often repeated the desire for peaceful relations, reaching a comprehensive agree ment that settles outstanding disputes still seems far off. But this does not mean that steps toward better economic relations cannot be taken. Indeed, there was a major breakthrough in trade relations at the meeting between then President Pervez Musharraf of Pakistan and Prime Minister Manmohan Singh of India in New Delhi in April 2005 (Joint Communiqué 2005). A number of trade-related issues were discussed at this meeting, and several key decisions were taken to move the process along.
  • Topic: Economics, Peace Studies, Bilateral Relations
  • Political Geography: Pakistan, South Asia, Asia, New Delhi
  • Author: Daniel H. Rosen, Thilo Hanemann
  • Publication Date: 06-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In 1967 Jean-Jacques Servan-Schreiber published Le defi americain, a call to beware of American multinationals buying up the world. In the 1980s and 1990s it was Japan's turn, spawning books like Clyde Prestowitz's 1993 Trading Places: How We Are Giving Our Future to Japan. Today it is China's outbound foreign direct investment (OFDI) that elicits the most anxiety China's OFDI has reached commercially and geoeconomically significant levels and begun to challenge international investment norms and affect international relations.
  • Topic: International Relations, Economics, International Trade and Finance, Foreign Direct Investment
  • Political Geography: China, America, Asia
  • Author: Adam S. Posen, Nicolas Véron
  • Publication Date: 06-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Since mid-2007, public authorities in the European Union have broadly met the challenge of ensuring a functional degree of liquidity and preventing financial meltdown. The Eurosystem has even been ahead of the curve compared with the Federal Reserve and the Bank of England in discounting early on a wide variety of assets to a range of counterparties. However, despite unprecedented central bank intervention, extensive government guarantees since October 2008, and macroeconomic assistance (with the International Monetary Fund) to the European Union's weakest member states, the underlying state of continental Europe's banking industry remains very fragile.
  • Topic: Economics, Markets, Monetary Policy
  • Political Geography: United States, United Kingdom, Europe
  • Author: John Williamson
  • Publication Date: 06-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: A once-familiar but long-neglected acronym has reappeared in newspapers in recent weeks. We have read that the G-20 meeting in London endorsed a proposal that the International Monetary Fund (IMF) should create $250 billion in Special Drawing Rights (SDRs). We have been told that one problem with this proposal is that most of the SDR allocation would accrue to countries that are unlikely to use them, and some readers may have seen proposed ways around this difficulty. We have read that the governor of the People's Bank of China, Zhou Xiaochuan, has proposed that the SDR should gradually displace the dollar at the center of the international monetary system and that surplus countries should be able to convert their dollar holdings into SDR-denominated assets. No one can doubt that the SDR is back.
  • Topic: Economics, International Cooperation, International Political Economy, International Trade and Finance, Monetary Policy
  • Political Geography: United States, China
  • Author: Richard N. Cooper
  • Publication Date: 09-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The US dollar is not the world's key currency by policy design, just as English is not the leading global language by policy design. It is the evolutionary outcome of practice and experience. It would take both a major shock to the dollar and a viable alternative to dislodge it from widespread use. Like a common language, the dollar enjoys “network externalities”— the greater the number of people who use and accept it, the more useful it is to everyone, and the more entrenched it becomes. Also, what is not quite the same thing, the dollar enjoys a large market in low-risk and highly liquid securities, most notably US Treasury bills; the liquidity both enhances and is enhanced by the network externalities. Most of the world's foreign exchange transactions directly involve the US dollar. It is easy to hold and easy to use, even on a large scale. In short, it is highly convenient.
  • Topic: Economics, Foreign Exchange, International Trade and Finance
  • Political Geography: United States
  • Author: John Williamson
  • Publication Date: 09-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In a recent Cato Institute paper, Swaminathan S. Anklesaria Aiyar (2009) asserts that the International Monetary Fund's special drawing rights (SDRs) cannot rival the US dollar, as suggested by the Chinese central bank governor (Zhou Xiaochuan 2009). “The SDR is not a currency and never can be,” Swami declares confidently in the first paragraph of his paper. He presents two arguments, which are presumably supposed to be proofs of this proposition.
  • Topic: Economics, Foreign Exchange, International Trade and Finance
  • Political Geography: United States
  • Author: Mohsin S. Khan
  • Publication Date: 08-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: As oil prices began to rise in 2009 from a low point of about $40 a barrel in January to around $70 a barrel in July, a key question is whether the world is in for another oil price spike in the near term similar to that witnessed in early 2008. Several hypotheses were advanced when world oil prices started their inexorable climb from 2003–04 onwards, then skyrocketed from $92 a barrel in January 2008 to cross the $140 a barrel mark in June, finally hitting a record high of $147 a barrel on July 11, 2008, before collapsing to less than $40 a barrel in December (figure 1). There was the “peak oil” explanation, based on the theories of M. King Hubbert of “Hubbert's Peak” fame and his supporters, notably Colin Campbell and Matthew Simmons, that the world was running out of oil. There were the market “fundamentalists,” including importantly John Lipsky, the first deputy managing director of the International Monetary Fund (IMF), and Philip Verleger, a well-known oil expert, who argued that the fundamentals of demand and supply were primarily behind the extraordinary rise in oil prices in the first half of 2008 (Lipsky 2009a, 2009b; Verleger 2005, 2008). Interestingly, this fundamentals view was also shared by the US Treasury and was articulated by David McCormick, then undersecretary for international affairs, in a presentation in July 2008 at the Peterson Institute for International Economics. Finally, there were those who maintained that such an increase could only be a “bubble,” unexplained by peak oil theory or market fundamentals. Many financial-market participants were proponents of this third view, notably Michael Masters (2008), as well as the main oil producers, who were as surprised as anyone at the speed and size of the price increase over only a few months. Their argument was that the phenomenal increase in financialization of commodity markets during 2006–08, including in particular the oil market, led to speculation and momentum trading, which pushed oil prices way beyond their long-term equilibrium level as determined by fundamentals.
  • Topic: Economics, International Trade and Finance, Oil
  • Political Geography: United States