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  • Author: Joseph E. Gagnon, Olivier Jeanne
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper shows that the scope for bond yields to fall below zero is strictly limited by market expectations about how far below zero central banks are willing to set their short-term policy rates. If a central bank communicates a credible commitment to keeping its policy rate above a given level under all circumstances, then bond yields must be higher than that level. This result holds true even in a model in which central banks are able to depress the term premium in bond yields below zero via large-scale purchases of long-term bonds, also known as quantitative easing (QE). QE becomes less effective as bond yields approach their lower bound.
  • Topic: Economics, Finance, Central Bank, Global Bond Market
  • Political Geography: Global Focus
  • Author: Chad P. Bown, Aksel Erbahar, Maurizio Zanardi
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines how trade protection is affected by changes in the value-added content of production arising through global value chains (GVCs). Exploiting a new set of World Trade Organization (WTO) rules adopted in 1995 that impose an exogenously timed requirement for countries to reevaluate their previously imposed trade protection, the authors adopt an instrumental variables strategy and identify the causal effect of GVC integration on the likelihood that a trade barrier is removed. Using a newly constructed dataset of protection removal decisions involving 10 countries, 41 trading partners, and 18 industries over 1995–2013, they find that bilateral industry-specific domestic value-added growth in foreign production significantly raises the probability of removing a duty. The results are not limited to imports from China but are only found for the protection decisions of high-income countries. Back-of-the-envelope calculations indicate that rapid GVC growth in the 2000s freed almost a third of the trade flows subject to the most common temporary restrictions (i.e., antidumping) applied by high-income countries in 2006.
  • Topic: Economics, International Trade and Finance, Global Markets, Finance, Trade
  • Political Geography: Global Focus
  • Author: David Reifschneider, David Wilcox
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: If the Federal Reserve does not decisively change the way it conducts monetary policy, it will probably not be capable of fighting recessions in the future as effectively as it fought them in the past. This reality helped motivate the Fed to undertake the policy framework review in which it is currently engaged. Researchers have suggested many steps the Fed could take to improve its recession-fighting ability; however, no consensus has emerged as to which of these steps would be both practical and maximally effective. This paper aims to fill that gap. It recommends that the Fed commit as soon as possible to a new approach for fighting recessions, involving two key elements. First, the Fed should commit that whenever it runs out of room to cut the federal funds rate further, it will leave the rate at its minimum level until the labor market recovers and inflation returns to 2 percent. Second, the Fed should commit that under the same circumstances, it will begin to purchase longer-term assets in volume and will continue such purchases until the labor market recovers. If the forces driving the next recession are not unusually severe, this framework might allow the Fed to be as effective at fighting that recession as it was in the past. If the next recession is more severe, however, the Fed will probably run out of ammunition even if it takes the two steps recommended here. Therefore, both monetary and fiscal policymakers should consider yet other steps they could take to enhance their ability to fight future recessions.
  • Topic: Economics, Monetary Policy, Federal Reserve
  • Political Geography: North America, Global Focus, United States of America
  • Author: Chad P. Bown, Soumaya Keynes
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: On December 10, 2019, the World Trade Organization’s (WTO) 25-year-old system of resolving disputes broke down. This paper explains why. It describes the dysfunctional system that preceded the WTO, when the United States dealt with politically troublesome imports by using voluntary export restraints and increasingly resorted to the “aggressively unilateral” Section 301 policy to resolve trade concerns. The WTO was a compromise between the rest of the world and the United States, whereby the latter accepted some constraints with the expectation that the new system of binding dispute settlement would serve its interests. But although the creation of the WTO resolved some concerns about American unilateralism in the short term, its system of handling disputes turned out to be politically unsustainable.
  • Topic: Economics, World Trade Organization, Trade, Donald Trump
  • Political Geography: North America, United States of America
  • Author: Okko-Pekka Salmimies
  • Publication Date: 09-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: Finland is preparing a Strategic Programme for the Circular Economy this autumn. It offers an opportunity to strengthen policy coherence between domestic policies and different aspects of foreign policy relevant when promoting a circular economy.
  • Topic: Foreign Policy, Economics, Domestic politics
  • Political Geography: Europe, Finland, Scandinavia
  • Author: Jens Beckert, Timur Ergen
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: This paper discusses sociological analyses of the formation and role of expectations in the economy. Recognition of the social constitution of expectations advances the understand- ing of economic action under conditions of uncertainty and helps to explain core features of modern capitalist societies. The range of applications of the analytical perspective is il- lustrated by closer examination of three core spheres of capitalist societies: consumption, investment, and innovation. To provide an idea of core challenges of the approach, three major research questions for the sociological analysis of expectations are presented.
  • Topic: Economics, Markets, Sociology, Capitalism, Innovation
  • Political Geography: Global Focus
  • Author: Adedeji Adeniran, Idris Ademuyiwa
  • Publication Date: 07-2020
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: The growth of digitalization and digital technology adoption in Africa holds the key to strengthening and diversifying economies across the continent. Although these developments offer potentially life-changing benefits for consumers, businesses and governments, the inherent flaws in the digital market mean these benefits are not guaranteed. As most gains from the digital economy are largely concentrated in the United States and China, the digital divide may widen the gap between the Global North and the Global South.
  • Topic: Economics, Governance, Digital Economy, Digitalization
  • Political Geography: Africa, Global South
  • Author: Rudolf Furst
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Institute of International Relations Prague
  • Abstract: The Euro-Japanese rapprochement stimulates the Japanese interest in the new EU member states, which are then matched with Japanese investments and Japan’s global trade strategy. The V4 countries benefit from their geographical position, existing infrastructure and political stability, industrial tradition, and low labour costs, emphasizes Rudolf Fürst.
  • Topic: Economics, Bilateral Relations, Labor Issues, European Union, Political stability, Industry
  • Political Geography: Japan, Europe, Asia
  • Author: John Lee
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Hudson Institute
  • Abstract: Throughout the United States, it is becoming increasingly clear that the Chinese Communist Party (CCP) is exploiting COVID-19 in an effort to reshape the global order and enhance China’s international leadership at the expense of the US. A range of prominent commentators further assert that the Trump administration bears much of the blame for this turn of events. This argument tends to rest on twin assumptions:1 China is winning the battle of narratives when it comes to comparative national competence and its decisiveness in responding to its COVID-19 outbreak. The Trump administration is damaging America’s standing by getting off to a bad start in its response to the pandemic, exposing the underlying weaknesses of American institutions and preparedness for such a crisis. These arguments correctly acknowledge that the global pandemic is occurring within a context of US-China strategic, political, and economic competition and/or rivalry. This is the point of warnings to the administration that there is more at stake than containing and managing the virus, even if that is the immediate priority.
  • Topic: International Relations, Foreign Policy, Economics, Health, National Security, COVID-19
  • Political Geography: China, East Asia
  • Author: Harold Furchtgott-Roth, Kirk R. Arner
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Hudson Institute
  • Abstract: American businesses and consumers have an unequal relationship. Consumers generally are and should be sovereign because a consumer—not a seller, nor a third party, nor even the government—usually decides what to purchase. Consumers must like a business to buy its product or service. If a business has poor service, sales will suffer. And if a business is tainted by scandal, customers will flee. As courtiers of purchasing power, businesses go on bended knee to pay homage to the consumer. Typically, a business need not like a consumer to sell products or services. In most lines of business, a seller must sell to anyone willing to pay. And although there are types of businesses where a seller can legally refuse a sale, most rational sellers seek as many customers as possible.
  • Topic: Economics, Government, Sovereignty, Regulation
  • Political Geography: Global Focus