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62. An Update on EU Financial Reforms
- Author:
- Nicolas Véron
- Publication Date:
- 12-2010
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In the context of a transatlantic comparison, the first thing to be mentioned is the difference between the time sequence of financial reforms in the European Union and its equivalent in the United States. The financial crisis started simultaneously on both sides of the Atlantic, with the initial disruption of some financial market segments in August 2007 and the major panic episode of September through October 2008. But they are not at the same stage of policy reaction and especially regulatory reform now. At least four reasons can be identified for this difference.
- Topic:
- Economics, Global Recession, Monetary Policy, and Financial Crisis
- Political Geography:
- United States and Europe
63. Renminbi Undervaluation, China's Surplus, and the US Trade Deficit
- Author:
- William R. Cline
- Publication Date:
- 08-2010
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- On June 21, 2010, in the run-up to the G-20 meeting in Toronto, China announced that it would shift to a more flexible exchange rate policy. From mid-June to July 30 the yuan rose 0.8 percent against the dollar. In contrast, the currency had remained fixed (at about 6.83 yuan to the dollar) from September 2008 to early June 2010. Pressure not only from the United States and the European Union but also from Russia, Brazil, and India as well as the IMF seems likely to have played a role in China's decision, although concerns about domestic inflation may also have been a factor.
- Topic:
- Economics and Monetary Policy
- Political Geography:
- United States and China
64. Managing Credit Booms and Busts: A Pigouvian Taxation Approach
- Author:
- Olivier Jeanne and Anton Korinek
- Publication Date:
- 09-2010
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- We study a dynamic model in which the interaction between debt accumulation and asset prices magnifies credit booms and busts. We find that borrowers do not internalize these feedback effects and therefore suffer from excessively large booms and busts in both credit flows and asset prices. We show that a Pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare. We calibrate the model with reference to (1) the US small and medium-sized enterprise sector and (2) the household sector and find the optimal tax to be countercy - clical in both cases, dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms.
- Topic:
- Debt, Economics, Global Recession, and Financial Crisis
- Political Geography:
- United States
65. Trade Disputes Between China and the United States: Growing Pains so Far, Worse Ahead?
- Author:
- Gary Clyde Hufbauer and Jared C. Woollacott
- Publication Date:
- 12-2010
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This study covers the history of Sino-US trade relations with a particular focus on the past decade, during which time each has been a member of the World Trade Organization (WTO). Providing a brief history of 19th and 20th century economic relations, this paper examines in detail the trade disputes that have arisen between China and the United States over the past decade, giving dollar estimates for the trade flows at issue. Each country has partaken in their share of protectionist measures, however, US measures have been characteristically defensive, protecting declining industries, while Chinese measures have been characteristically offensive, promoting nascent industries. We also cover administrative and legislation actions within each country that have yet to be the subject of formal complaint at the WTO. This includes an original and comprehensive quantitative summary of US Section 337 intellectual property rights cases. While we view the frictions in Sino-US trade a logical consequence of the rapid increase in flows between the two countries, we caution that each country work within the WTO framework and respect any adverse decisions it delivers so that a protracted protectionist conflict does not emerge. We see the current currency battle as one potential catalyst for such conflict if US and Chinese policymakers fail to manage it judiciously.
- Topic:
- Economics, International Trade and Finance, Markets, and Bilateral Relations
- Political Geography:
- United States and China
66. Money for the Auto Industry: Consistent with WTO Rules?
- Author:
- Gary Clyde Hufbauer and 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, and Financial Crisis
- Political Geography:
- United States
67. A Green Recovery? Assessing US Economic Stimulus and the Prospects for International Coordination
- Author:
- Trevor Houser, Shashank Mohan, and 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, and International Trade and Finance
- Political Geography:
- United States
68. Buy American: Bad for Jobs, Worse for Reputation
- Author:
- Gary Clyde Hufbauer and 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, and International Affairs
- Political Geography:
- United States
69. Did Reagan Rule In Vain? A Closer Look at True Expenditure Levels in the United States and Europe
- 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, and Privatization
- Political Geography:
- United States and Europe
70. The GCC Monetary Union: Choice of Exchange Rate Regime
- Author:
- Mohsin S. Khan
- Publication Date:
- 04-2009
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The creation of a monetary union has been the primary objective of the Gulf Cooperation Council (GCC) members since the early 1980s. Significant progress has already been made in regional economic integration: The GCC countries have largely unrestricted intraregional mobility of goods, labor, and capital; regulation of the banking sector is being harmonized; and in 2008 the countries established a common market. Further, most of the convergence criteria established for entry into a monetary union have already been achieved. In establishing a monetary union, however, the GCC countries must decide on the exchange rate regime for the single currency. The countries' use of a US dollar peg as an external anchor for monetary policy has so far served them well, but rising inflation and differing economic cycles from the United States in recent years have raised the question of whether the dollar peg remains the best policy.
- Topic:
- Economics, Foreign Exchange, and Regional Cooperation
- Political Geography:
- United States
71. US Taxation of Multinational Corporations: What Makes Sense, What Doesn't
- Author:
- Gary Clyde Hufbauer and 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, and Financial Crisis
- Political Geography:
- United States
72. Pressing the "Reset Button" on US-Russia Relations
- Author:
- Anders Åslund and 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, and Economics
- Political Geography:
- Russia and United States
73. A Solution for Europe's Banking Problem
- Author:
- Adam S. Posen and 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, and Monetary Policy
- Political Geography:
- United States, United Kingdom, and Europe
74. Understanding Special Drawing Rights
- 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, and Monetary Policy
- Political Geography:
- United States and China
75. The Future of the Dollar
- 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, and International Trade and Finance
- Political Geography:
- United States
76. Why SDRs Could Rival the Dollar
- 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, and International Trade and Finance
- Political Geography:
- United States
77. The 2008 Oil Price "Bubble"
- 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, and Oil
- Political Geography:
- United States
78. Structural and Cyclical Trends in Net Employment over US Business Cycles, 1949-2009: Implications for the Next Recovery and Beyond
- 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, and Markets
- Political Geography:
- United States
79. American Multinationals and American Economic Interests: New Dimensions to an Old Debate
- 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, and Financial Crisis
- Political Geography:
- United States and America
80. Multilateralism beyond Doha
- Author:
- Arvind Subramanian and Aaditya Mattoo
- Publication Date:
- 10-2008
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- A fundamental shift is taking place in the world economy to which the multilateral trading system has failed to adapt. The Doha process focused on issues of limited significance while the burning issues of the day were not even on the negotiating agenda. The paper advances five propositions: (1) the traditional negotiating dynamic, driven by private-sector interests largely in the rich countries, is running out of steam; (2) the world economy is moving broadly from conditions of relative abundance to relative scarcity, and so economic security has become a paramount concern for consumers, workers, and ordinary citizens; (3) international economic integration can contribute to enhanced security; (4) addressing these new concerns-relating to food, energy, and economic security-requires a wider agenda of multilateral cooperation, involving not just the World Trade Organization but other multilateral institutions as well; and (5) despite shifts in economic power across countries, the commonality of interests and scope for give-and-take on these new issues make multilateral cooperation worth attempting.
- Topic:
- Security, Economics, International Trade and Finance, Treaties and Agreements, and World Trade Organization
- Political Geography:
- United States, China, and Europe