Crisis Shakes Europe: Stark Choices Ahead
Finance and Development Jun/Aug 2009
We look at the harsh toll of the crisis on both Europe's advanced and emerging economies because of the global nature of the shocks that have hit both the financial sector and the real economy, and because of Europe's strong regional and global trade links. Marek Belka, Director of the IMF's European Department, writes in our lead article that beyond the immediate need for crisis management, Europe must revisit the frameworks on which the European Union is based because many have been revealed to be flawed or missing. But in many respects, one key European institution has proved its mettle-the euro. Both Charles Wyplosz and Barry Eichengreen discuss the future of the common currency. Also in this issue, IMF economists rank the current recession as the most severe in the postwar period; John Lipsky, the Fund's First Deputy Managing Director, examines the IMF's role in a postcrisis world; and Giovanni Dell'Ariccia assesses what we have learned about how to manage asset price booms to prevent the bust that has caused such havoc. In addition, we talk to Oxford economist Paul Collier about how to help low-income countries during the current crisis, while Donald Kaberuka, President of the African Development Bank, writes about how African policymakers can prepare to take advantage of a global economic recovery. 'Picture This' looks at what happens when aggressive monetary policy combats a crisis; 'Back to Basics' gives a primer on fiscal policy; and 'Data Spotlight' takes a look at the recent large swings in commodity prices.
America’s Saving Rate and the Dollar’s Future
Martin Feldstein (Project Syndicate) Aug 2009
The saving rate of American households has risen sharply since the beginning of the year, reaching 6.9% of after-tax personal income in May, the highest rate since 1992. In today’s economy, that is equivalent to annual savings of $750 billion.
Conservative Interventionism
J. Bradford DeLong (Project Syndicate) Aug 2009
At this stage in the worldwide fight against depression, it is useful to stop and consider just how conservative the policies implemented by the world’s central banks, treasuries, and government budget offices have been. Almost everything that they have done – spending increases, tax cuts, bank recapitalization, purchases of risky assets, open-market operations, and other money-supply expansions – has followed a policy path that is nearly 200 years old, dating back to the earliest days of the Industrial Revolution, and thus to the first stirrings of the business cycle.
In Search of an Obama Trade Policy
Claude Barfield and Philip I. Levy (AEI) Aug 2009
President Obama’s trade policy is an elusive beast. There will be claims of a sighting—as when U.S. Trade Representative (USTR) Ron Kirk emerged for a speech in May[1]—only to have the authenticity of the sighting called into question—as when the White House quickly disowned Kirk’s remarks. Analysts in search of the true Obama trade policy are left sifting through spoor, trying to follow a trail. Of course, the very difficulty of the task conveys important information: trade policy is not a high priority for the Obama administration. Awkwardly, though, this disinterest comes at a time when the rest of the world has repeatedly indicated its eagerness for action to bolster the global trading system, when the warmer diplomatic relations that the Obama administration seeks often depend upon tighter trade ties, and when Congress has been particularly emboldened in its protectionist passions.
Beware of FDI Protectionism
Karl P. Sauvant (Project Syndicate)
Aug 2009
During their most recent meetings, the G-8 took a strong stance against protectionist measures in the area of foreign direct investment (FDI), echoing calls for a moratorium in such measures issued earlier by the G-20. Both were right to do so.
The Key to Ending Hunger
Thomas Hager (Project Syndicate) Aug 2009
The recent news that two-thirds of adults in the United States are overweight or obese – and the number continues to grow – brings to mind a question that has bothered me since the 1970’s: Why aren’t we all starving?
Good and Bad Capitalism
Michel Rocard (Project Syndicate) Aug 2009
The reality of market exchange – direct transactions between merchants and customers – appeared gradually 3,000 or 4,000 years ago. In this novel social relationship, the customer was free to buy whatever he wanted, whenever and from whomever he chose, often bargaining with the seller about the price.
Emerging Financial Markets After the Global Financial Crisis
A. Michael Spence (PIMCO) Aug 2009
The crisis has raised questions about our grasp of the evolving structure of the financial system.
The Confidence Game
Kenneth Rogoff (Project Syndicate) Aug 2009
Next month marks the one year anniversary of the collapse of the venerable American investment bank, Lehman Brothers. The fall of Lehman marked the onset of a global recession and financial crisis the likes of which the world has not seen since the Great Depression of the 1930’s. After one year, trillions of dollars in public monies, and much soul searching in the world’s policy community, have we learned the right lessons? I fear not.
Are Bankers Really Overpaid?
Howard Davies (Project Syndicate) Aug 2009
Are financial sector workers paid too much? Not all of them are, of course, for there are poorly paid bank clerks and cleaners who count in this category. But is it possible to justify the enormous rewards earned – or should we say received – by investment bankers, hedge fund managers and private equity partners?
Decoupling Versus Recoupling
Mohamed El-Erian (PIMCO) Aug 2009
The international dimensions of the decoupling process are much more nuanced than suggested by consensus analysis.
How to Waste a Crisis
Harold James (Project Syndicate) Aug 2009
The global financial crisis is reaching a bottom, and yet political frustration is growing, because the low point of the collapse seems to offer a last opportunity to promote dramatic change, and that opportunity may be missed. Last year, President Obama’s chief of staff Rahm Emanuel remarked that a good crisis should never be wasted. Disaster is an opportunity for thinking of ways to make the world fundamentally better – and also prevent future crises. People do a great deal of thinking, but sometimes they think so much that they come up with contradictory responses.
Let Finance Skeptics Take Over
Dani Rodrik (Project Syndicate) Aug 2009
The race is on to fill the most important economic policy position in the world. United States Federal Reserve Chairman Ben Bernanke’s term ends in January, and President Barack Obama must decide before then: either re-appoint Bernanke or go with someone else – the names most often mentioned are Larry Summers and Janet Yellen – with more solid Democratic credentials.
An External Stability Pact for Europe
Sebastian Dullien and Daniela Schwarzer (Project Syndicate) Aug 2009
The current economic crisis has exposed two fundamental problems in the design of the European Monetary Union. The first concerns the sustainability of public finances in a number of euro-zone member states. Second, inadequate macroeconomic policy coordination has resulted in divergences in the international competitiveness of euro-zone members, threatening the very existence of the euro.
Emerging Markets in the New Normal
Curtis Mewbourne (PIMCO) Aug 2009
For countries to become and remain dominant in the global economy they must reduce their dependency on others and develop their own source of sustainable demand.
A Phantom Recovery?
Nouriel Roubini (Project Syndicate) Aug 2009
Where is the American and global economy headed? Last year, there were two sides to the debate. One camp argued that the recession in the United States would be V-shaped – short and shallow. It would last only eight months, like the two previous recessions of 1990-1991 and 2001, and the world would decouple from the US contraction.
What Now for the World's Central Bankers at Jackson Hole?
Andrew Balls (PIMCO) Aug 2009
The waning impact of policy stimulus over the next year and the weakness of income growth are two key challenges to economic activity.
A $9 Trillion Question: Did the World Get Muhammad Yunus Wrong?
Peter F. Schaefer (FP) Aug 2009
As Yunus receives the Medal of Freedom and Nobel rumors swirl around Hernando de Soto, it is time to give these two poverty-fighting visionaries another look.
Modernizing the Middle East’s Economies
Prince El Hassan bin Talal (Project Syndicate)
Aug 2009
Rather than speak of the Middle East or the Arab world, I increasingly prefer to use the term WANA, meaning West Asia-North Africa. But, whatever we choose to call it, the danger is that the global economic crisis is providing an almost perfect alibi for governments and others in the region to continue with “business as usual,” when what is needed is a loud wake-up call.
Debunking decoupling
Andrew K. Rose (VoxEU) Aug 1, 2009
Less synchronised business cycles would be good news for the world economy, allowing for more stable global growth and opportunities for risk-sharing across countries. However, is decoupling fact or fiction? This column says that, contrary to much current commentary, there is no downward trend in synchronisation.
Emerging Asia must heed the risks of bubbles
Frederic Neumann (FT) Aug 2, 2009
As the region decouples from the west, monetary policy should be tailored more to address local growth conditions.
Could an early warning system have predicted the crisis?
Andrew K. Rose & Mark M. Spiegel (VoxEU) Aug 3, 2009
The 2008 global financial crisis has led to renewed calls for “early warning models” to reduce the risks of future crises. But this column says that few of the characteristics suggested as potential causes of the crisis actually help predict the intensity and severity of the crisis across countries. That bodes poorly for the performance of future early warning models.
Obama's Trade Test
WSJ Aug 4, 2009
The President faces his steel tariff moment.
Markets can be wrong and the price is not always right
Richard Thaler (FT) Aug 4, 2009
The 'efficient market hypothesis' has been a fact of life for economists. Among other things, it says that asset prices will fully reflect available information; and that it is hard for any investor to beat the market after taking risk into account. Has the last year changed how it is viewed.
The source of malaria
Economist Aug 4, 2009
Human malaria started in chimpanzees.
China Fights to Keep Markets Open
Bridges Weekly Trade News Digest Volume 13, Number 29 Aug 5, 2009
China launched WTO dispute cases against two major world economies on Friday, flexing its muscles on the world stage in an effort to gain greater access to developed country markets amid the economic downturn. In a two-part move on 31 July, Beijing challenged EU anti-dumping tariffs on Chinese steel fasteners as well as a US ban on the country's chicken imports.
Africa Pushes for Trade Reforms at AGOA Forum
Bridges Weekly Trade News Digest Volume 13, Number 29 Aug 5, 2009
African leaders are urging reform of the African Growth and Opportunity Act (AGOA) - a trade agreement between 39 sub-Saharan African countries and the United States - at this week’s eighth annual AGOA forum. The meeting, which began on Tuesday and will conclude on Thursday, provides a regular opportunity for leaders from the member states to discuss strategies for improving inter-regional trade.
Potatoes, the fruit of the earth
Nathan Nunn & Nancy Qian (VoxEU) Aug 5, 2009
How important is nutrition to economic development? This column shows that the introduction of the potato can explain 22% of the rise in population and 47% of the rise in urbanisation during the 18th and 19th centuries.
Financial liberalisation and “partial democracy”
Nauro F. Campos & Fabrizio Coricelli (VoxEU) Aug 6, 2009
Will the current crisis reverse the past two decades of democratisation and financial liberalisation? This column documents the complex, non-linear relationship between political and financial reform. Financial liberalisation often reverses as countries move from autocracy to democracy, as “partial democracies” are less liberalised, and there are big differences between de jure and de facto liberalisation.
How to rebuild a shamed subject
Robert Skidelsky (FT) Aug 6, 2009
It is natural that the failure of the economics profession – with a few exceptions – to foresee the coming collapse should have discredited its scientific pretensions. Economics is revealed to have no more clothes than other social science. Reconstruction of the discipline needs to start with the universities.
Hillary of Africa
WSJ Aug 6, 2009
A welcome focus on failed governance.
Economists shuffle the deckchairs
Samuel Brittan (FT) Aug 6, 2009
What matters is whether economists can identify significant turning points and systemic failures in good time. They cannot.
Land of the Rising Yen
Akio Mikuni (NYT) Aug 6, 2009
With American consumers likely to spend less for years to come, exports and a weak yen can no longer be Japan's path to growth.
Regulating derivatives: Naked fear
Economist Aug 6, 2009
Tougher rules are needed but may go too far.
In defence of the dismal science
Robert Lucas (Economist) Aug 6, 2009
A rebuttal of criticisms that the financial crisis represents a failure of economics.
US-China Duopoly Is a Pipedream
Christopher M. Clarke (YaleGlobal) Aug 6, 2009
Their strategic differences and global interconnectedness make such a condominium impossible
The next food crisis
José Cuesta (VoxEU) Aug 7, 2009
The food crisis caught some policymakers off guard. Will they be ready next time? This column argues that most studies of the crisis offer little in the way of tractable policy responses. This knowledge gap leaves policymakers unprepared to prevent or mitigate the next food price crisis.
Global: V Shapes
Manoj Pradhan (MS GEF) Aug 7, 2009
While the V-shaped recovery and the V-shaped policy response have been priced in, another V-shape is missing – a large bounce in inflation expectations.
Creditor protection and financial crises
Galina Hale & Assaf Razin (VoxEU) Aug 8, 2009
Finding reliable indicators that predict the likelihood and severity of crises across countries has been a frustrating quest for economists. This column suggests that countries with better creditor protection suffer less when a crisis hits.
Should big banks be required to buy crisis insurance?
Hans Gersbach (VoxEU) Aug 8, 2009
The crisis is a brutal reminder of the fragility of banks. This column suggests that managers of large banks be obliged to purchase insurance against systemic crises. This would create incentives for them to be concerned about the stability of the banking system as a whole.
Do not discount the threat of peak oil
Will Whitehorn and Jeremy Leggett (FT) Aug 9, 2009
Like the banking elite in the run-up to the financial crisis, the oil industry may be wrapped in a 'social silence' on the true worth of its assets.
Could Greenland be the new Iceland?
Anne Sibert (VoxEU) Aug 10, 2009
As Greenland moves away from Denmark and acquires more autonomy, this column asks whether it might be too small. In assessing the relationship between country size and economic performance, it warns that small states have more volatile GDP, more volatile consumption, and more incompetent civil servants.
Democracy cannot wait for the 'new generation'
John Lloyd (FT) Aug 10, 2009
Everywhere, the political classes are unsure of their mandate. Yet they are called on to master the gravest of issues.
Central banks must time a 'good exit'
Randall Kroszner (FT) Aug 11, 2009
Seventy-three years ago, a sharp tightening of monetary policy stopped the robust recovery that had been in train since 1933, precipitating a 'double-dip' contraction in 1937-38. Today, central banks must not repeat this premature exit mistake.
Guadalajara Summit Presages Broader Cooperation on Climate Change
Jeffrey J. Schott (PIIE) Aug 11, 2009
The North American Leaders' Summit (NALS) in Guadalajara earlier this week (August 9-10, 2009) dealt with both political and economic challenges facing the three members of the North American Free Trade Agreement (NAFTA)—United States, Canada, and Mexico. The headlines focused on what to do about Honduras, how to prepare for the next wave of the [...]
Europe needs to screen Chinese investment
Maaike Okano-Heijmans and Frans-Paul van der Putten (FT) Aug 11, 2009
It is essential that the European Union has one review system for sensitive foreign takeovers.
Biological tweak to Adam Smith
Martin Hutchinson (AT) Aug 12, 2009
The ventromedial prefrontal cortex has been around a lot longer than credit default swaps, subprime mortgages and even Alan Greenspan - and may have played as big a role as these in the present financial crisis. If we were more aware of our biological demands and responses, we could make our actions more economically rational.
Credit still at the wheel
Julian Delasantellis (AT) Aug 12, 2009
After the credit boom and bust, a foreclosure auction encapsulates capitalism's power of creative destruction and a return to its first principles - you buy something, you pay for it, in cash. Yet lurking not far away is the brute pain of eviction - and the driving need, still, for dodgy credit.
Economists, economics, and the crisis
Luigi Spaventa (VoxEU) Aug 12, 2009
This column outlines tough questions about economics and economists raised by the global crisis.
W.T.O. Rules Against China's Limits on Imports
NYT Aug 12, 2009
The decision was seen as a victory for the United States at a time when China is being perceived as increasingly nationalistic in its trade policies.
Simple explanations for global financial instability
Jacopo Carmassi, Daniel Gros & Stefano Micossi (VoxEU) Aug 13, 2009
Why is there so much disagreement about the causes of the crisis? This column says that lax monetary policy and excessive leverage are to blame. It argues that many alleged causes are simply symptoms of these policy errors. If that is correct, then the recommended corrective is remarkably simple – there is no need for intrusive regulatory measures constraining non-bank intermediaries and innovative financial instruments.
China and the W.T.O.
NYT Aug 13, 2009
The World Trade Organization's ruling on China's distribution of imported books, movies and songs should be a warning to its government to restrain its economic nationalism.
Global: What Will Tightening Look Like?
Manoj Pradhan (MS GEF) Aug 13, 2009
Monetary tightening is likely to take any or all of the following forms: (i) allowing lending rates to drift higher; (ii) stalling monetary expansion; (iii) contracting central bank balance sheets due to sale of ‘active’ QE assets; and (iv) policy rate hikes. None of these suggest that tightening is imminent any time soon.
What About the BRICs?
John Frankenstein (YaleGlobal) Aug 13, 2009
More mortar is needed to make the BRICs stick together.
How to release the next boom
George Magnus (FT) Aug 13, 2009
Investors will have to use their judgment to identify winners and losers, but new growth drivers will emerge.
Boeing and Airbus argue about subsidies
Economist Aug 13, 2009
The two big aircraft-makers battle it out at the World Trade Organisation.
China loses a WTO battle
Economist Aug 13, 2009
A victory over China for America's news and entertainment industries.
Cause and defect
Economist Aug 13, 2009
Instrumental variables help to isolate causal relationships. But they can be taken too far.
World Trade Victory
WSJ Aug 14, 2009
A blow to Chinese protectionism, and a lesson for the U.S.
Was the 2008 Oil Price Spike a "Bubble"?
Mohsin S. Khan (PIIE) Aug 14, 2009
As oil prices began to rise in 2009, the question is whether the world is in for another oil price spike similar to the one in early 2008 that could choke off the nascent recovery of the world economy. To judge whether such an outcome is in the cards, one has to [...]
Education and growth: Quality, not quantity
Eric Hanushek & Ludger Woessmann (VoxEU) Aug 14, 2009
Latin Americans are relatively educated, so why has their economic growth lagged over the past four decades? This column attributes the disappointing performance to the difference between educational quantity and quality. Schooling is relevant for economic growth only insofar as it actually improves cognitive skills, and Latin American economies have lagged in terms of educational quality.
Democracy, diversification, and growth reversals
David Cuberes & Michal Jerzmanowski (VoxEU) Aug 15, 2009
What explains developing countries’ greater economic volatility? This column documents the relationship between democracy and growth reversals. It argues that greater democracy, not higher income, is responsible for dampening economic volatility. Greater democratisation and economic diversification would reduce both dramatic declines and growth accelerations.
Global economic council should oversee all
Timothy Adams and Arrigo Sadun (FT) Aug 16, 2009
It is time to devise a new architecture for the global economic order geared to the challenges of the 21st century.
Iceland's debt repayment limits will spread
Michael Hudson (FT) Aug 16, 2009
Forcing the payment of excessive foreign debts requires an oppressive financial regime, which Keynes warned could lead to nationalistic political reactions.
Will U.S. Recovery Go Global?
Robert J. Samuelson (WP) Aug 17, 2009
The world can't rely on American consumers to carry the global economy.
Disclose the fair value of complex securities
Robert Kaplan, Robert Merton and Scott Richard (FT) Aug 17, 2009
Efforts by banks to escape the strictures of fair-value accounting are gaining support among regulators and legislators, but should be resisted.
Debt Raters Have No Place in Brave New World
Alice Schroeder (Bloomberg) Aug 18, 2009
It boggles the mind that the ratings companies are getting what amounts to a pass from Congress as it imposes wholesale repairs on other parts of our broken financial system. This is one of the places where big changes could matter most, so we will regret it if we waste this opportunity.
The original “cash for clunkers”: International trade in used vehicles
Lucas W. Davis & Matthew E. Kahn (VoxEU) Aug 18, 2009
Under the US “cash for clunkers” programme, billions of dollars are being allocated to pay drivers to purchase a new vehicle and scrap their old automobile. This column says the programme will reduce international trade in used cars, which significantly benefits consumers in developing economies. Such trade also increases the average emission efficiency of automobiles in both the US and developing nations, which raises the possibility that “cash for clunkers” might raise global emissions.
Why we need to regulate the banks sooner, not later
Kenneth Rogoff (FT) Aug 18, 2009
There are problems with the view that the costs of greater bank regulation outweigh the benefits, and that the issue for the financial sector was a botched Lehman bail-out. The problem of moral hazard – created by the bank bail-outs – remains.
Oil can be a curse on poor nations
Moisés Naím (FT) Aug 18, 2009
Poor but resource-rich countries tend to be underdeveloped not despite their resources, but because of them.
George Eliot wrote the book on moral hazard
John Kay (FT) Aug 18, 2009
For lessons on how to teach feckless gamblers to behave responsibly while minimising future expenses, turn to Middlemarch.
America Cannot Resolve Global Imbalances on Its Own
C. Fred Bergsten and Arvind Subramanian (FT/PIIE) Aug 19, 2009
The Obama administration is increasingly signaling that the United States will not continue to be the world's consumer and importer of last resort. The clearest statements came last month from Larry Summers, White House economics director, in a speech at the Peterson Institute for International Economics and in an interview with the Financial Times. The United States, he said, must become an export-oriented rather than a consumption-based economy and must rely on real engineering rather than financial wizardry. Tim Geithner, the US Treasury secretary, and other top officials have spoken similarly of rebalancing US growth.
It’s Not All Downhill: Developing Countries Also Export High End Goods and Services
Arvind Subramanian (PIIE) Aug 18, 2009
We tend to think of globalization in the following way: the rich world exports financial capital, technology, sophisticated goods, and entrepreneurial and managerial skills in the form of foreign direct investment (FDI) to developing countries; the latter, in turn, export people, resources, and low-skilled goods to the rich.
Global: Between a Rock and a Hard Place
Manoj Pradhan & Spyros Andreopoulos (MS GEF) Aug 20, 2009
The transition from ultra-expansionary policy to a neutral stance may be very tricky if the current imbalance between different channels of monetary transmission persists.
U, V or W for recovery
Economist Aug 20, 2009
What shape will recovery take?
Integrity deficit has its price
Henry CK Liu (AT) Aug 20, 2009
In a global financial architecture of national fiat currencies, the role of a reserve currency in international trade is to keep all trading nations monetarily honest.
Winding up failed banks: Fail-safe
Economist Aug 20, 2009
The problems of winding up huge financial firms.
Emerging market debts: Why don’t investment banks pay attention?
Marc Flandreau (VoxEU) Aug 21, 2009
How would financial markets assess complicated structured products in the absence of ratings agencies? This column uses the history of emerging economies’ government debt to argue that investment banks used to win market share by building a reputation for quality products. It says that ratings agencies insulated investment banks from reputational rewards and freed them to deal in junk.
World Bankers Suggest Rebound May Be Under Way
NYT Aug 21, 2009
Central bankers from around the world are starting to focus on how to unwind the policies they used to fight the global financial crisis.
Fiscal stimulus for debt-intolerant countries
Carmen M. Reinhart & Vincent Reinhart (VoxEU) Aug 22, 2009
Developed economies are implementing massive fiscal stimulus packages. Should emerging economies? This column warns them that fiscal multipliers are not certain, financing budget deficits will not be easy, the risk of default looms, and central bank independence may be eroded.
A “systemic vulnerability index”: Measuring risk in the asset generation chain
Luca Anderlini & Leonardo Felli (VoxEU) Aug 22, 2009
Like flights, securities can be non-stop (direct claims) or they can involve (sometimes many) intermediate stops (indirect claims). How should we measure the vulnerability of different securities to "systemic risk"? This column proposes a simple index to capture the important information of interest to both regulators and investors.
Sugar Land
WSJ Aug 22, 2009
Obama's slow roll on free trade.
The risk of a double-dip recession is rising
Nouriel Roubini (FT) Aug 23, 2009
The recovery will be far less robust than the optimists think. There is now a rising risk of a double-dip W-shaped recession if oil, energy and food prices continue to rise – as they are now – faster than economic fundamentals warrant.
How toxic finance created an unstable world
Wolfgang Münchau (FT) Aug 23, 2009
Global imbalances would not have become so extreme if global finance had not provided the instruments.
Obama to Nominate Bernanke to 2nd Term at Fed
NYT Aug 24, 2009
Ben S. Bernanke, a Republican whom President Bush first appointed as chairman of the Federal Reserve, has been commended for his leadership during the financial crisis.
Why this new crisis needs a new paradigm of economic thought
Keiichiro Kobayashi (VoxEU) Aug 24, 2009
Do the US and Europe risk repeating Japan’s lost decade? This column warns that if the US or European financial clean-ups falter, they will be vulnerable to recurring financial crises. It argues that macroeconomic models should not treat finance as an innocuous veil and calls for a new approach that places financial intermediaries at the centre of its models.
IMF adopts irrigation plan during a flood
Hossein Askari (AT) Aug 25, 2009
The International Monetary Fund, despite having been blind to the impending global financial crisis, has been granted a lease of life as the world seeks to recover. This evades the need for genuine reform while preserving the privileges of countries serving as reserve currency centers. It may also result in the default of fragile countries.
The case against Bernanke
Stephen Roach (FT) Aug 25, 2009
Ben Bernanke lacked the foresight and courage to resist the most reckless tendencies of the era of excess, writes Stephen Roach
China's stimulus shows the problem of success
Yu Yongding (FT) Aug 25, 2009
China's massive government investment programme is worsening the overcapacity problem while its cash injection is creating asset bubbles. To achieve a sustainable rebound, China needs to strike a fine balance between crisis management and structural reforms.
Froth at the bottom of the pyramid
Economist Aug 25, 2009
Is microfinance going the same way as subprime mortgages?
Taylor Rule Change Will Hurt Fed’s Inflation Fight
John Taylor (Bloomberg) Aug 25, 2009
The Taylor Rule -- the guideline for central bank interest-rate decisions -- has been the subject of a heated debate among Fed watchers this summer, popping up in market newsletters, blogs and Bloomberg screens.
Kissinger Is Back in Currency Amid China Bubble
William Pesek (Bloomberg) Aug 26, 2009
Anyone wondering about China’s economic future could look to officials in Beijing. Or, they could just check with Henry Kissinger.
Overmighty finance levies a tithe on growth
Benjamin Friedman (FT) Aug 26, 2009
Modern financial institutions help to make the economy more efficient. But the finance system must be tested to see if its extra expense outweighs the benefits it brings.
Control High Inflation, Not Exchange Rates
Anders Åslund (PIIE) Aug 26, 2009
It cannot be denied: Exchange rate policy around the world is confused and lacks theoretical ground. Although the degree of confusion varies, Russia is close to taking the prize. Before World War I, it was easy. Just about everybody used the gold standard, and if any country faced too high prices they had to be reduced. In the interwar period, the gold standard broke down, and it was replaced by competitive devaluations, which amounted to severe protectionism.
Global: Jackson Hole 0, Jerusalem 1
Joachim Fels (MS GEF) Aug 27, 2009
Notwithstanding the surprise rate hike by the Bank of Israel this week, we continue to believe that the major central banks will keep rates on hold until well into 2010. We feel that this view was confirmed by central bankers at Jackson Hole.
Obama must resist the anti-trade mobs
Chad Bown (FT) Aug 27, 2009
The president faces his first test on trade, and it could be a defining moment: the point when the global trading system withstands protectionist forces, or caves in.
We should put sand in the wheels of the market
Avinash Persaud (FT) Aug 27, 2009
Variations on the Tobin tax on financial transactions are not only commonplace, but have become easier to enforce.
Trade surprises
Economist Aug 27, 2009
Romania's trade deficit has shrunk.
Chinese bank lending
Economist Aug 27, 2009
Where has the flood of credit gone?
Central banks' changing role: Jackson's holes
Economist Aug 27, 2009
The financial crisis will change central banking more than many central bankers care to admit.
IMF Injecting $283 Billion in SDRs into Global Economy, Boosting Reserves
IMF Survey Aug 28, 2009
With much of the world still mired in recession, the IMF took action to bolster its members' reserves through an allocation of SDRs, or Special Drawing Rights. The allocation, equivalent to $250 billion, was made on August 28 and will be followed by an additional, albeit much smaller allocation of $33 billion on September 9.
Fear of appreciation in emerging economies
Andrea Kiguel & Eduardo Levy-Yeyati (VoxEU) Aug 29, 2009
After a crisis-induced hiatus, the exchange rate landscape seems to be moving back to a situation that resembles 2007. This column says that fear of appreciation is part of a leaning-against-the-wind exchange rate policy that promises to be the norm for emerging economy currencies for years to come. That may pose difficulties for global rebalancing.
US trade’s transmission of the global recession
Michael J. Ferrantino & Aimee Larsen (VoxEU) Aug 29, 2009
International trade has transmitted demand contractions across national boundaries throughout the crisis. This column analyses the transmission of the recession through US trade flows at the sectoral level. US imports of housing construction inputs peaked before many other popular housing indicators.
A case for (even) more transparency in the OTC markets
Viral Acharya & Robert Engle (VoxEU) Aug 29, 2009
Over-the-counter (OTC) markets produced most of the toxic assets that played a prominent role in the ongoing crisis. This column advocates further transparency in OTC markets regulation, arguing that it would make participants apply appropriate risk controls, lower systemic risk, and better situate regulators to address failures of large institutions.
An Echo Chamber of Boom and Bust
Robert J. Shiller (NYT) Aug 29, 2009
THE global signs of a recovery in economic confidence seem puzzling.
Central banks can adapt to life below zero
Wolfgang Münchau (FT) Aug 30, 2009
At rates of minus 1 or 2 per cent, people would still opt to hold cash in deposits rather than taking the trouble to hide it under a mattress and hire round-the-clock security guards.
New evidence on international trade, offshoring, and US wages
Ann Harrison (VoxEU) Aug 31, 2009
This column revisits the heated debate over international trade, offshoring, and US wages using new data. It says that increased international exchange with low-income countries has depressed US wages. That effect only arose during the 1990s, suggesting a different conclusion about trade, offshoring, and income inequality than the previous round of debate.
Triple time-inconsistent policies
Guillermo Calvo (VoxEU) Aug 31, 2009
This column introduces "triple time-inconsistent" episodes. First, a public institution is expected to cave in and offer a bailout to prevent a crisis. Then, in an attempt to regain credibility, it pulls back. Finally, it resumes bailing out the survivors of the wreckage caused by the policy surprise. This column characterises the 1998 Russian crisis and the current crisis as triple time-inconsistency episodes and says that a financial crisis may simply be a bad time to try to build credibility.
Dollar Is Funny Money in Push for World Currency
Kevin Hassett (Bloomberg) Aug 31, 2009
Like the Chinese, the folks at Disney World peg their currency to the dollar. Hand them $1 U.S. and you receive one Disney dollar, complete with a picture of Mickey Mouse or his friends, plus the signature of Disney’s official treasurer, Scrooge McDuck.
Why Oil Still Has a Future
Daniel Yergin (WSJ) Aug 31, 2009
Demand in the developing world trumps new technology.
Germany will not drive a European recovery
Simon Tilford (FT) Aug 31, 2009
A sustainable EU recovery requires a rebalancing: Germany will need to grow under its own steam while other countries boost exports.