Debates over Exchange Rates: Overview and Issues for Congress

Debates over Exchange Rates: Overview and Issues for Congress.  Congressional Research Service, Library of Congress. Rebecca M. Nelson. June 22, 2018

 Exchange rates are among the most important prices in the global economy. They affect the price of every country’s imports and exports, as well as the value of every overseas investment. Over the past decade, some Members of Congress have been concerned that foreign countries are using exchange rate policies to gain an unfair trade advantage against other countries, or “manipulating” their currencies. Congressional concerns have focused on China’s foreign exchange interventions over the past decade to weaken its currency against the U.S. dollar, although concerns have also been raised about a number of other countries pursuing similar policies.

 [PDF format, 29 pages].

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The Dangerous Inadequacies of the World’s Crisis-Response Mechanisms

The Dangerous Inadequacies of the World’s Crisis-Response Mechanisms. Brookings Institution. Adam Triggs. May 4, 2018

 The paper war-games crisis scenarios based on past crises to test the adequacy of the global financial safety net: the international institutions and arrangements designated to help economies facing an economic or financial crisis. It calculates the size of the safety net in aggregate terms and from the perspective of each G-20 economy. It explores whether the safety net is large enough, how the different components of the safety net would need to interact during a crisis and how this differs for different countries and regions. For some widespread shocks, the paper finds that the safety net struggles to provide even the same level of support as it has in the past. Even for smaller shocks, multiple components of the safety net need to be coordinated, a process complicated by the differing objectives, mandates and interdependencies of each component. The paper shows how the safety net’s coverage has become patchier, leaving many emerging market and developing economies exposed. It explores what the G-20 could do to strengthen the safety net, reporting the results from in-depth interviews with 61 leaders, central bank governors, ministers and officials from across the G-20, including Janet Yellen, Kevin Rudd, Ben Bernanke, Haruhiko Kuroda, Jack Lew, Mark Carney and 55 others. [Note: contains copyrighted material].

 [PDF format, 47 pages].

Do Governments Drive Global Trade Imbalances?

Do Governments Drive Global Trade Imbalances? Peterson Institute for International Economics. Working Paper 17-15. Joseph E. Gagnon. December 2017

This paper examines the extent to which government policies are responsible for the pattern of current account (trade) imbalances and, by implication, the extent to which such policies might be used to achieve the G-20 goal of reducing imbalances. Fiscal balances and foreign exchange intervention are the most important observable factors behind differences in current account balances across countries and over time. This finding is robust to alternative equation specifications, estimation techniques, and sample selections. The empirical results in this paper strongly suggest that G-20 countries (and others) have the necessary tools to achieve their stated goal of narrowing current account imbalances. [Note: contains copyrighted material].

 [PDF format, 26 pages].

The Four Faces of China in Central and Eastern Europe

The Four Faces of China in Central and Eastern Europe. YaleGlobal. Michał Romanowski. November 30, 2017

 China’s Belt and Road Initiative winds its way into Europe including cooperation and projects with 16 Central and Eastern Europe nations. The sixth annual meeting of 16+1 heads of state convened in Hungary to plan investments in technology, finance, agriculture, health, education and more, Michal Romanowski, with the German Marshall Fund of the United States, categorizes four types of Chinese involvement in the region: As connector, China invests in infrastructure, presenting a warning for Brussels not to neglect Central and Eastern Europe. As shaper, China often overlooks diversity and treats the region as a single bloc, which in turn can prompt caution. As investor, China has not made Central and Eastern Europe a priority, and the United States and the European Union are responsible for the bulk of the region’s foreign investment. Still, China with ample resources can be regarded as challenger for enterprises inside the region and beyond. “It should be remembered in Central and Eastern Europe that China has grown into a promoter of globalization not only out of goodwill but due to its own national interests,” Romanowski notes. He urges leaders throughout the region and Europe as a whole to adopt a similar pragmatic attitude. [Note: contains copyrighted material].

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After Brexit: Alternate Forms of Brexit and Their Implications for the United Kingdom, the European Union and the United States

After Brexit: Alternate forms of Brexit and their implications for the United Kingdom, the European Union and the United States. RAND Corporation. Charles P. Ries et al. December 11, 2017.

Whether Brexit is judged to be success or not will depend to some degree on its economic impact. Much of the debate in the UK around Brexit has been focused on a ‘hard’ or ‘soft Brexit’, which relates to whether the UK should leave the Single Market and the Customs Union. However, there are a range of different trade opportunities and arrangements that could happen between the UK and European Union (EU), and other countries, such as the U.S., post-Brexit.

RAND explored eight plausible post-Brexit trade scenarios involving the UK, EU and U.S. after Brexit. Game theory insights were also used to create a better understanding of how a variety of factors might affect the outcome of Brexit negotiations. [Note: contains copyrighted material].

[PDF format, 159 pages, 1.31 MB].

The Payoff to America from Globalization: A Fresh Look with a Focus on Costs to Workers

The Payoff to America from Globalization: A Fresh Look with a Focus on Costs to Workers. Peterson Institute for International Economics. Policy Brief, 17-16. Gary Clyde Hufbauer and Zhiyao (Lucy) Lu. May 2017

Hufbauer and Lu, updating a landmark PIIE study made in 2005, calculate the payoff to the United States from trade expansion from 1950 to 2016 at $2.1 trillion. The payoff has stemmed from trade expansion resulting from policy liberalization and improved transportation and communications technology. The sum translates into an increase of $7,014 in GDP per capita and $18,131 in GDP per household. The potential gains from future policy liberalization could be as large as $540 billion for the United States by the year 2025, or an increase of $1,670 in GDP per capita and $4,400 in GDP per household. On the other hand, 156,250 manufacturing sector jobs were lost annually over the past 13 years, representing less than a percent of the number of people involuntary separated from their jobs each year. A more generous unemployment insurance program and expanded tax credits would help displaced workers adjust, the authors argue, while preserving the large gains resulting from trade expansion. [Note: contains copyrighted material].

[PDF format, 27 pages, 385.11 KB].

International Financial Cooperation Benefits the United States

International Financial Cooperation Benefits the United States. Peterson Institute for International Economics. Policy Brief 17-10. Edwin M. Truman. March 2017

The financial crisis of 2007–09 wreaked worldwide havoc because of the interconnectedness of many countries’ economies and financial systems. To contain and stabilize these interwoven global financial systems and avert future crises thus requires international cooperation, preferably with American leadership. The Trump administration’s policies on these matters are unclear. But early indications are cause for concern over future US commitment to international regulations to prevent and manage the inevitable occurrence of future crises. [Note: contains copyrighted material].

[PDF format, 12 pages, 205.34 KB].