The Evolution of Economic Governance in EMU

This paper examines the benefits of co-ordination in EMU in a stylised manner and how these benefits have shaped the co-ordination framework in EMU. It then discusses in detail the co-ordination experience in four areas that are particularly important for the functioning of EMU: (i) fiscal policy co-ordination under the Stability and Growth Pact (SGP); (ii) the co-ordination of structural policies under the Lisbon Strategy for Growth and Jobs; (iii) the representation and co-ordination of euro-area positions in international financial fora; and (iv) the co-ordination of macroeconomic statistics. The thrust of the findings is that EMU's system of economic governance has, overall, proven fit for purpose. The current policy assignment to the institutions and instruments that govern the conduct of economic policy in EMU is sound, even though further progress is necessary in several areas, particularly as regards external representation.Governance, EMU, euro area, co-ordination, van den Noord, D�hring, Langedijk, Nogueira-Martins,Pench, Temprano-Arroyo, Thiel

North Korea’s External Economic Relations

North Korea’s international transactions have grown since the 1990s famine period. Illicit transactions appear to account for a declining share of trade. Direct investment is rising, but the county remains significantly dependent on aid to finance imports. Interdependence with South Korea and China is rising, but the nature of integration with these two partners is very different: China’s interaction with North Korea appears to be increasingly on market-oriented terms, while South Korea’s involvement has a growing noncommercial or aid component. These patterns have implications for North Korea’s development, the effectiveness of UN sanctions, and its bargaining behavior in nuclear negotiations.North Korea, sanctions, political economy, aid, transitional economies

Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed

The controversy within the United States over Chinese exchange rate policy has generated a series of legislative proposals to restrict the discretion of the Treasury Department in determining currency manipulation and to reform the department’s accountability to Congress. This paper reviews Treasury’s reports to Congress on exchange rate policy—introduced by the 1988 Trade Act—and Congress’s treatment of them. It finds that the accountability process has often not worked well in practice: The reports provide only a partial basis for effective congressional oversight. For its part, Congress held hearings on less than half of the reports and overlooked some important substantive issues. Several recommendations can improve guidance to the Treasury, standards for assessment, and congressional oversight. These include (1) refining the criteria used to determine currency manipulation and writing them into law, (2) explicitly harnessing US decisions on manipulation to the International Monetary Fund’s rules on exchange rates, (3) clarifying the general objectives of US exchange rate policy, (4) reaffirming the mandate to seek international macroeconomic and currency cooperation, (5) requiring Treasury to lead an executivewide policy review, and (6) institutionalizing multicommittee oversight of exchange rate policy by Congress. Legislators should strengthen reporting and oversight of broader exchange rate policy in addition to strengthening the provisions targeting manipulation.Exchange rate policy, currency manipulation, accountability, congressional oversight, China,Treasury, International Monetary Fund

The Dutch fiscal framework; history, current practice and the role of the CPB

According to the IMF and the OECD, the Dutch fiscal framework is rather unique, and its design and implementation are highly recommendable. Major features of the Dutch fiscal framework are the trend-based fiscal framework with real net expenditure ceilings for the whole term of government, the role of independent organisations, like the CPB, Statistics Netherlands and the Netherlands Court of Audit, and the intermediary role of the national advisory group on budgetary principles. This paper discusses the current practice of the Dutch fiscal framework, including the role played by the CPB. It also provides an overview of its history. Three periods are distinguished: the balanced budget as official principle (1814-1956), Keynesian deficit norms (1957-1979) and norms for reducing deficit and debt (1980-present).

The monetary presentation of the euro area balance of payments

This occasional paper describes the monetary presentation of the euro area balance of payments and its use. The monetary presentation is a tool for assessing the impact of balance of payments transactions involving non-bank residents on monetary developments. The paper explains in detail the principle underlying this approach, i.e. the link between the external counterpart of money, as reflected in the balance sheet of the banking sector, and the balance of payments. From a statistical perspective, it is shown that the monetary presentation of the balance of payments, which is based on international statistical standards, may be applied in any country or currency union. With regard to euro area statistics, the paper elaborates on the practical implementation of the monetary presentation, while also describing a few approximations and remaining statistical challenges. Finally, the paper assesses how the monetary presentation of the balance of payments has been used for analysing monetary developments in the euro area, and highlights the significant impact of balance of payments transactions on monetary dynamics in certain periods. JEL Classification: E51, F40Monetary analysis, capital flows, balance of payments

China Bashing 2004

On April 26, 2004, Senator John Kerry released his six-point trade program, "Trade Enforcement: Asleep at the Wheel," and conspicuously targeted China for violating worker rights, dumping, and supporting "illegal currency manipulation" (Kerry 2004). Five days earlier, senior Bush administration officials met with Chinese Vice Premier Wu Yi to settle a few trade disputes (e.g., WiFi) but did not resolve the most contentious ones (exchange rates, semiconductors, and labor rights).

Report on the State of Available Data for the Study of International Trade and Foreign Direct Investment

This report, prepared for the Committee on Economic Statistics of the American Economic Association, examines the state of available data for the study of international trade and foreign direct investment. Data on values of imports and exports of goods are of high quality and coverage, but price data suffer from insufficient detail. It would be desirable to have more data measuring value-added in trade as well as prices of comparable domestic and imported inputs. Value data for imports and exports of services are too aggregated and valuations are questionable, while price data for service exports and imports are almost non-existent. Foreign direct investment data are of high quality but quality has suffered from budget cuts. Data on trade in intellectual property are fragmentary. The intangibility of the trade makes measurement difficult, but budget cuts have added to the difficulties. Modest funding increases would result in data more useful for research and policy analysis.

EXPERIENCES WITH TRADITIONAL COMPENSATORY FINANCE SCHEMES AND LESSONS FROM FLEX

This paper describes some policy instruments set up by the IMF and the European Union in order to provide financial assistance to developing countries whose economies are affected by exogenous shocks from exports side. After briefly reviewing the IMF’s CFF and the EU’s STABEX, the paper presents the operational rules of FLEX and comments on how it functioned from 2000 to 2007. The analysis shows that the FLEX facility suffered from there being inadequate finance allocated to ACPs and from delays in the financing procedure. While these constraints greatly limited the impact of FLEX in the application years 2000-2006, the 2008 FLEX revision eased them and, now, FLEX can guarantee financial support more rapidly than in the past and may more satisfactorily cover the financial requirements of ACPs coping with export earnings instability.Developing Countries, Export Earnings Instability, Budget Support

Fiscal Policy Issues for India after the Global Financial Crisis (2008-2010)

The need for fiscal consolidation and sustainability is one of the key macroeconomic issues confronting Indian economy. This paper attempts to understand India's current fiscal situation, its likely future development, and its impact on the economy in the context of a weak global recovery from the current crisis. The impact of the global crisis has been transmitted to the Indian economy through three distinct channels, namely: the financial sector, exports, and exchange rates. The other significant channel of impact is the slump in business and consumer confidence leading to decrease in investment and consumption demand. The Indian government, to boost the demand, has announced several stimulus packages. However, there is not much room for further fiscal policy action as the consolidated fiscal deficit of the central and state governments in 2009-2010 is already about 11% of the gross domestic product (GDP). Any further increase in the fiscal deficit to GDP ratio could invite a sharp downgrading of India's credit rating and a loss of business confidence. The paper reviews the existing theories on the relationship between fiscal deficit and growth. It also analyzes the past trends and policy measures to understand the possible implications for economic recovery and long run growth in the Indian context. It also provides a long-term forecast of the fiscal deficit and public debt burden based on the past trends. Finally, the paper suggests a set of policy measures to get the Indian economy back on the path of sustained rapid and inclusive growth.indian public finance; global financial crisis; deficit forecasts; fiscal policies

Cross-border workers’ remittances: Transmission channels and measurement issues in India

The debate on appropriate measurement of workers’ remittances and the greater need for conceptual clarity about such statistics both for the compilers and the users raises certain important issues. First, lack of uniformity in properly identifying and measuring remittances of migrant workers constrains the scope of international comparability. For instance, in many countries translated in the form of transfers to residents as unrequited transfers. These country specific formats of remittance transfers and their inclusion in the remittance statistics need to be clearly recognized. Thus, the definitional issues need clarity to provide direction to the compiling counties to produce comparable statistics. Second, the experience of developing countries suggests that the survey method has its own limitations due to poor response of participants, particularly in a more liberalized environment. Even under the ITRS, the introduction of formats seeking disaggregated information does not ensure quality of data when respondents are either not cautious in classifying the detailed transactions or lack adequate skill to handle such information. Missing incentive systems for the reporting entities may also result in inadequate data quality. Third, is there a need for synthesizing statistics on remittances and the migration statistics? To what extent the migration statistics can keep pace with the requirements of compilation of remittances in terms of updated information, and attributes such as changing structure of migrant stocks, skill classification, average income levels, duration of stay etc. Possibility to develop an appropriate information system through coordinated efforts of migration authorities, immigration offices, the population census and the BoP compilers? The scope for sharing the host country statistics on immigration, which is presumably credible due to firm record of immigrants. Fourth, as many countries rely on the ITRS, it becomes extremely difficult to segregate between workers’ remittances and the compensation of employees by the reporting entities. The thin dividing line is conceptual rather than functional and more often the reporting entities do not have details on the period of stay.Workers' remittances; transmission channels