Current Account Imbalances Coming Back

This paper finds statistically robust and economically important effects of fiscal policy, external financial policy, net foreign assets, and oil prices on current account balances. The statistical model builds upon and improves previous explanations of current account balances in the academic literature. A key advance is that the model captures the effect of external financial policies, including exchange rate policies, through data on net official financial flows. Based on current and expected future policies, current account imbalances in major G-20 economies are likely to widen much more in the next five years than projected by the International Monetary Fund (IMF). This paper concludes with a discussion of appropriate policies to prevent widening imbalances.exchange rate, G-20, official financial flows, sterilized intervention

The World Needs Further Monetary Ease, Not an Early Exit

Governments and central banks around the world eased macroeconomic policies aggressively in response to the 2008 financial crisis, arguably forestalling a second Great Depression. More recently, however, policymakers have been talking about when to withdraw the stimulus. This focus on exit is misguided. Current forecasts show an extended period of economic stagnation in the developed world. We need additional stimulus now, argues Joseph Gagnon. In particular, central banks in the main developed economies should push long-term interest rates 75 basis points below the levels they would otherwise be by purchasing a combined $6 trillion in long-term public and private debt securities. Relative to current forecasts, this policy action is expected to boost GDP 3 percent or more over the next eight quarters and to reduce unemployment rates by between 1 and 3 percent. Without additional stimulus, unemployment rates are likely to remain above equilibrium levels for many years at great cost to the world economy in terms of lost income and personal hardship. Moreover, with inflation rates already below desired levels, excess unemployment threatens to cause a fall in prices that would further damp recovery and retard the necessary process of deleveraging. In light of high and rising levels of public debt, additional monetary stimulus is preferable to additional fiscal stimulus. Indeed, monetary stimulus reduces the ratio of public debt to GDP by reducing interest expenses, increasing GDP, expanding tax revenues, and enabling an earlier start to fiscal consolidation.

Inflation regimes and inflation expectations

This paper examines the formation of expectations about future inflation over long horizons. A key issue that agents must confront is the possibility that the economic policy framework— especially the monetary policy regime—could change at some future date. Agents are likely to base inferences about possible future regimes on experience over many years and decades past. This aspect of expectations formation may explain why inflation premiums in long-term bond yields are higher in countries with a long history of high inflation.Inflation (Finance)

U.S. international transactions in 2000

The U.S. current account deficit widened to $435 billion in 2000, a record 4.4 percent of gross domestic product, as the lagged effect of strong growth in the U.S. economy in late 1999 and early 2000 continued to drive up imports of goods and services faster than exports increased. To a lesser extent, a decline in U.S. price competitiveness also contributed to the expansion in the deficit. The$104 billion increase in the current account deficit was entirely accounted for by an equal-sized increase in the goods and services deficit. Other components of the current account moved in small and offsetting directions. The current account deficit represents an excess of U.S. investment over U.S. saving of more than $400 billion. In addition, almost$300 billion of U.S. saving flowed abroad in the form of a continued increase in foreign direct and portfolio investment by U.S. residents. To finance the current account deficit and the capital outflow, the foreign private sector purchased a record amount--more than $700 billion--of U.S. securities and direct investment assets. The sharp slowdown in U.S. economic growth in late 2000 and early 2001 should reduce the rate of increase of the current account deficit in 2001 through a slowing of the rate of growth of goods and services imports.International trade ; Exports ; Imports

Inflation Regimes and Inflation Expectations

There has been much talk in the popular press about the difficulty of attaining credibility in the bond markets for the low-inflation policies that have been adopted by a number of central banks in recent years. This credibility problem is particularly severe for those countries that have a history of high inflation. Gaining credibility is often viewed in the context of learning by the public about the central bank’s true intentions. However, this paper argues that a more important aspect of credibility – at least for long-term inflation expectations – may be public views about how future changes in personnel, electoral results, or economic shocks may affect central bank behaviour. In other words, there is always a positive probability that the current regime will end. Views about the nature of possible future regimes are likely to be influenced by observed past regimes.

The Imperative of High-Quality Education in Juvenile Corrections : An Introduction to the Special Section

Non peer reviewe

Understanding the empirical literature on purchasing power parity: the post-Bretton Woods era

Foreign exchange ; Purchasing power

How Pervasive is the Product Cycle? The Empirical Dynamics of American and Japanese Trade Flows

This paper looks for dynamic patterns in international trade flows using comprehensive multilateral American and Japanese data disaggregated to the four-digit SITC level. Little evidence is found of product-cycle dynamics between 1962 and 1988. Rather, goods that begin the sample in surplus (deficit) almost always remain in surplus (deficit) throughout the sample.

Markup Adjustment and Exchange Rate Fluctuations: Evidence From Panel Data on Automobile Exports

This paper uses bilateral automobile export unit values from the United States, Germany and Japan to measure the importance of markup adjustment that is associated with exchange rate changes across export destination markets. Japanese auto export prices exhibit a high degree of markup adjustment that has the effect of stabilizing prices in units of the buyer's currency. There is weak evidence of this behavior in German auto exports and none for U.S. auto exports. Where it exists, markup adjustment is very persistent, not merely a short run phenomenon. The dynamic pattern of adjustment is consistent with invoicing in the exporter's currency, except for exports to the United States and Canada.

Market Share and Exchange Rate Pass-Through in World Automobile Trade

This paper explores the relationship between exchange rate pass-through and market share for monopolistically competitive exporters. Under fairly general assumptions we show that pass-through should be high for exporters based in a country with a very large share of total destination market sales. For source countries with small and intermediate market shares, the theoretical relationship is potentially nonlinear and sensitive to assumptions about the nature of consumer demand and firm interactions. The model is estimated using a panel data set of automobile exports from France, Germany, Sweden, and the United States to a variety of destinations over the period 1970-1988. The empirical relationship between pass-through and market share is significantly non-linear: pass-through is the lowest when the source country's market share is around 45 percent and it is highest when the source country's share approaches 100 percent.