Agriculture,trade, and macroeconomics: The U.S. case

The persistent appreciation of the U.S. dollar from 1980 through 1984 raise the issue of macroeconomic impacts on trade sectors as a critical policy concern. In this article a six-variable vector autoregressive model is utilized to evaluate the dynamic effects of macroeconomic shocks on U.S. agriculture, a key trade sector. The results suggest that the impacts are substantial. Expansion of the money supply or a decline in the real interest rate or the real value of the dollar has a positive effect on agricultural exports and relative prices, whereas autonomous inflationary shocks have negative effects.     

Does the twin deficit hypothesis hold in the OECD countries under different real interest rate regimes?

This paper explores the validity of the twin deficit hypothesis in selected 25 OECD countries with annual data for 2005–2016 by considering different real interest rate regimes. A non-dynamic panel threshold model, introduced by Hansen (1999), is employed. The novelty of the empirical findings from the present study is that there exists a non-linear relationship between the budget deficit and the trade balance, which is driven by a critical threshold level in the real interest rates. The findings suggest that twin deficit hypothesis holds only under the low real interest rate regime, that is, rises in budget deficits lead to deteriorations in the trade balance when the real interest rate is below the threshold level. When the high real interest rate (i.e. above-the-threshold) regime is concerned, increasing budget deficits give rise to improvements in the trade balance, a finding consistent with the twin divergence hypothesis. Thus, the effect on the trade balance of an expansionary fiscal policy that worsens the budget balance reverses substantially depending on the threshold level of the real interest rates. The major policy implication of this paper is that the policy makers in the selected OECD countries should pay a greater attention to fiscal discipline in order to prevent the trade balance from worsening, because the majority of the countries fall into the low real interest rate regime over the recent years of the sample period (i.e. between 2010 and 2016).     

新时期的日美贸易谈判:成果与趋势探析

特朗普执政后,开始实行“美国优先”和贸易保护政策,反对多边主义,主张双边谈判。在美国对日存在大量贸易逆差、中美贸易摩擦持续、日本加快扩展对外经贸关系的形势下,美国与日本缔结双边贸易协定、加强经贸合作的必要性明显上升。2019年4月,美日启动双边贸易谈判,并在半年内签署了初步贸易协定,其范围基本未超日本所要求的货物贸易内容,仅增加了数字贸易领域,反映出日本与美国欲在新一轮国际贸易体系转型中引领规则与标准制定的战略意向。日美贸易协定对日本的预期经济效果低于CPTPP和日欧EPA,尤其是日本的农业将面对更加激烈的竞争。依照特朗普政府对日谈判方针,日美今后还将围绕汇率条款、原产地规则、投资及服务贸易等问题展开谈判,日本仍会面临来自美国的压力与挑战。     

The twin deficit hypothesis in Egypt

We employ a new approach to the twin deficit hypothesis aimed at enhancing policy making in Egypt. In contrast to the conventional twin deficit hypothesis between the current account, which comprises many items out of governments’ scope of maneuvering, and the budget deficit, we track the causal link between Egypt’s merchandise trade deficit and the budget deficit. We begin first by examining the conventional twin deficit hypothesis using a VAR model, which implies short run reverse causation running from the current account deficit to the budget deficit. Second, as cointegration exists between the budget deficit and the merchandise trade deficit, we run a multivariate VECM model which refutes the twin deficit hypothesis in favor of the current account targeting hypothesis. In policy terms, ameliorating Egypt’s trade balance would ultimately improve its fiscal balance as well.     

Macroeconomic impacts of Chinese currency appreciation on China and the Rest of World: A global CGE analysis

This paper analyzes the ex-ante short-term impacts of the Chinese RMB appreciation on the Chinese and world economy, using a novel approach of modeling nominal exchange rate adjustment in the GTAP, a global CGE model. Scenario results show that Chinese economy will be affected negatively, with lower real GDP, lower employment rates, and a decline in the trade surplus. Chinese currency appreciation has positive impact on the GDP of the major countries and regions, although by a small margin. With higher Chinese exchange rate, trade balance for other trading partner countries improves with the exception of the U.S.     

An Analysis of the Determinants of the Changes in China＇s Foreign Exchange Reserves＇ Nominal and Real Rates of Return

采用分解和回归方法,考察2002-2009年间中国外汇储备名义收益率与真实收益率变动的原因,可以发现：美国金融市场风险溢价是影响中国外汇储备名义收益率变动的最重要因素,美元汇率和大宗商品价格是影响中国外汇储备真实收益率的最重要因素。基于实证的研究还可以推断：美联储宽松货币政策会提高中国外汇储备名义收益率,但降低了真实收益率;欧洲债务危机对中国外汇储备名义收益率的影响不确定,但很可能提高了真实收益率。     

An Analysis of the Determinants of the Changes in China’s Foreign Exchange Reserves’ Nominal and Real Rates of Return

We use decomposition and regression to examine the reasons for the changes in nominal and real rates of return of China’s foreign exchange reserves between 2002 and 2009. The results show that the US financial market risk premium is the most important determinant of changes in the nominal rate of return, while the US dollar exchange rate and the bulk commodity price are the two key determinants of changes in the real rate of return. From empirically based research, one may conclude that the loose monetary policy of the US Federal Reserve increases China’s foreign exchange reserves’ nominal rate of return but decreases the real rate of return and that the European debt crisis has an uncertain impact on China’s foreign exchange reserves’ nominal rate of return but may well raise the real rate of return.     

A model of the Canadian global exchange rate: A test of the 1970s

A review of the literature indicates that no single exchange rate model has been able to track successfully the movements of the Canadian dollar for both the 1970–1976 period and the period thereafter. The purchasing power parity model, irrespective of whether based on relative wholesale prices, unit labor costs, GNP deflators, or export prices performs very poorly; the monetarist models collapse because of their strict adherence to the purchasing power parity and interest rate parity assumptions; the portfolio demand models require a significant adjustment for the post-1976 period. This paper presents a medium-term eclectic model of the global exchange rate of the Canadian dollar and examines a spectrum of broad issues that reflect on the efficiency of the foreign exchange market of Canada. These issues are basically related to the interest parity assumption, the role of speculation, and the test of rational expectations. The global exchange rate is defined as the value of the Canadian dollar measured in terms of a unit of basket of currencies comprising currencies of France, West Germany, Japan, the U.K., and the USA. The model belongs to the same genre of balance of payments structural models that explain the exchange rates by balancing demand and supply of foreign currencies. The model simultaneously explains both spot and forward rates, and it has been estimated and tested by using the quarterly data for 1971–1981.     

The economic consequences of an import surcharge: Theory and empirical evidence for the U.S. economy

This paper analyzes the impact of a 20 percent import surcharge on all U.S. imports and on imports from Japan, South Korea, Taiwan, and Brazil. The analytical framework is based upon the Michigan Model of World Production and Trade. We also discuss the methodology and results of two recent papers on the effects of an import surcharge. The empirical results indicate that, while the macroeconomic consequences of an import surcharge would be limited, significant intersectoral trade and employment adjustments would take place. The competitive position of U.S. tradable industries may improve or deteriorate depending on whether the dollar depreciates or appreciates in response to the import surcharge.     

Latin America's recovery from debt problems: An assessment of model-based projections

This paper examines economic assumptions used in assessing prospective economic adjustment of Latin America in response to its debt problems. The analysis compares forecasts obtained by combining parameter estimates from different researchers' trade models with the authors' macroeconomic models for Brazil. Chile, and Mexico. The influence of econometric procedure on simulation results is discussed. Then, by simulation analysis, the following issues are addressed: (1) likelihood of high domestic growth rates for Latin America in the late 1980s; (2) whether OECD growth or interest rates have a larger impact on developing-country economies; (3) effects of dollar depreciation and high interest rates on Latin America's debt problems.     

Fiscal stringency and fiscal sustainability: Panel evidence from the American state and local governments

Most state (and local) governments in the U.S. operate under formal fiscal rules which limit their ability to run budget deficits and resort to debt financing. A priori, one would expect to find evidence in favor of an intertemporally balanced budget, or fiscal sustainability, for these states, especially those characterized by a relatively high degree of fiscal stringency. We test this hypothesis for a panel of 47 state–local government units (1961–2006) using four budget balance definitions and several subsamples defined based on regional classifications, or presence of certain balanced budget requirements (BBRs). Our results, obtained from panel estimation techniques that allow for general forms of serial and cross-sectional dependence, suggest that a sufficient condition for “strong” sustainability is consistently satisfied for the full sample and all subsamples in relation to balances that include special funds and/or federal grants. However, we find evidence consistent with the “weak” version of sustainability for the full sample and some regional subsamples (particularly Far West dominated by California) in at least one of the two balances that exclude these items. Finally, the BBRs seem to matter only in relation to the sustainability of the more narrowly defined balances. We discuss the implications of these findings for the role of fiscal rules and federal grant policies.     

Dollar appreciation,deficit stimulation,and the new protectionism

This article probes whether contemporary U.S. protectionism arises from an appreciating dollar. It concludes that (a) an enrich-thy-neighbor policy of upvaluation has transformed the current U.S. economic recovery into an engine of global recovery; (b) flexible exchange rates continually equilibrate the balance of payments as evidenced in changed domestic—relative to foreign—prices, as well as in capital movements induced by interest-rate differentials resulting from exchange-rate shifts; and (c) flexible exchange rates automatically alter so as to maintain a country's competitive position in the world economy even when facing deficits at home and abroad.     

The European monetary system: An evaluation

The paper evaluates a number of the claims made for the European Monetary System (EMS), which is found to have exerted a stabilizing effect on exchange rates and to have reduced the vulnerability of member bilateral rates to the movements of the dollar. The claim that the EMS represents a successful example of durable international monetary cooperation is evaluated more cautiously. The largely successful compromise achieved between counterinflation gains and the presentation of the real terms of trade between members depends on the use of capital exchange controls and a possibly unique convergence of policy priorities.     

Emerging markets: Prospects and challenges

This article documents recent developments in emerging markets in the context of the COVID-19 pandemic, assesses their prospects and challenges, and discusses appropriate policy settings for the medium term. It argues that EM policymakers’ ability to grapple with an incomplete and uneven recovery will be constrained by high public debt and uncertain inflation prospects as well as external risks surrounding capital flows and exchange rate developments. The paper also discusses potential impact of a tightening in global financial conditions and appreciation of the US dollar that could be triggered by a general increase in risk aversion or a reassessment of the likely path of US monetary policy.     

International transmission of monetary and global commodity price shocks to Turkey

This paper explores the international transmission mechanisms on the macroeconomic and monetary variables of Turkey and hence proposes some particular policy implications. The effects of monetary shocks stemming from the U.S. and the European area, and global commodity price shocks are investigated using a structural vector auto-regression (SVAR) approach. For the analysis, we use monthly data from 2002M01 to 2016M06 and we analyze the transmission mechanism in Turkey using two different SVAR model specifications. Our results reveal that shocks coming from the U.S. and the Euro area lead to significantly different responses on industrial production, consumer prices, real effective exchange rates, and the domestic interest rate, with the Euro area monetary expansion having more explicit and positive effects on the real economy. The global commodity price shocks affect the Turkish macroeconomic variables in a similar but much less powerful fashion than that of the U.S. monetary expansion. As our empirical findings point out that the Turkish economy is vulnerable to global monetary and commodity price shocks. This vulnerability necessitates moving to a sustainable growth path consistent with a sustainable current account balance and a sustainable private and government debt coupled with a strengthened macroprudential regime and comprehensive structural reforms.     

The debt trap: A two-compartment train wreck… and how to avoid it

We explore sustainable paths out of a debt trap with a highly stylized two-sector differential equations model for the stocks of money in Government and Society. The model fits the data for the U.S. between 1981 and 2012 with a coefficient of correlation of 0.996. The solutions provide detailed “escape conditions” from the debt trap. A primary surplus is required. Then a government can escape its debt trap either through sustained annual monetary outflows from society to the government (taxation) but with a low initial growth rate, or through annual monetary inflows into both sectors (stimulus) with higher initial growth rate. We illustrate the use of our model with simulations which show how five indebted countries can escape their debt trap in 30 (or 70) years.     

Theorizing income inequality in the face of financial globalization

Based on an extended post-Keynesian model, we find that the association between the savings rate and income inequality is negative if savers’ funds are borrowed by spending households for consumption but positive if savings are channeled to investing firms for production. A negative association, such as the one that exists in the U.S., hinges on an income illusion created by an asset bubble and cheap credit. Thus, financial globalization leads consumption and income inequality to diverge, and the divergence is more extreme if lower-income groups have higher debt ratios. A positive association, such as the one that exists in China, relates to liquidity constraints faced by consumers such that consumption inequality closely follows income inequality. Our results imply that income inequality must be reduced in both types of countries to increase savings in deficit economies with negative associations and to reduce savings in surplus economies with positive associations.     

Inflation,oil prices and exchange rates. The Euro’s dampening effect

This paper aims to analyse the relationship between the euro/dollar exchange rate and oil prices and examine what effect this relationship had on the transmission of oil price fluctuations to headline inflation in the euro area since the currency’s creation. We estimate an augmented Phillips curve including changes in oil price, through which we study the role of the exchange rate in oil price pass-through by using different specifications. The main findings reveal a positive relationship between the euro/dollar exchange rate and oil prices, such that an increase in the price of oil is followed by an appreciation in the euro. We also find that the transmission of oil price fluctuations to headline inflation in the euro area has been partially dampened by this appreciation in the euro/dollar exchange rate. These results do not hold for other economies with internationally relevant currencies, such as Japan and the United Kingdom. These findings have important implications for the implementation of monetary policy in the euro area in the face of oil price shocks.     

Multilateralism under threat: Causes,impact, and the policy debate on government intervention in trade

Several forces fostered trade liberalization since the end of World War II. Production and trade interacted quite favorably during the period. In the past quarter century real income in the OECD economies grew at almost 4% yearly, while the volume of export increased by almost 7 percent. However, in the first half of the 1980s, the chemistry of the situation seems to have changed as protectionist tendencies developed almost everywhere in the world. The very same multilateral nature of the world trading system is under threat, as illiberal discriminatory practices are being implemented bilaterally and, even more often, unilaterally. What are the forces at play to increase the pressure towards government intervention in trade? The paper reviews (i) macroeconomic issues and policy situations, as well as (ii) structural issues concerning the working of the economic systems of industrial countries. The pressure for trade intervention in the U.S. is addressed separately with respect to Europe, given the structural and cyclical differences between the two economies The case of Japan is dealt with with reference to the alleged interrelation between Japan's international competitiveness and its macroeconomic policies. Matters of more direct concern to the LDCs are covered at the end of the paper, with emphasis placed on the restructuring process under way in response to, and as a consequence of, the external debt. The paper ends with a recommendation to all countries to make efforts to preserve and strengthen the multilateral and liberal foundations of the international trading system.     

United States trade and possible restrictions in high-technology products

This paper assesses the changing U.S. competitive position in high-technology products, and examines reasons for changes. It then inquires into the potential value of restrictive trade policies for promoting the U.S. interest in this sector, including mutual restrictions between the U.S., the EC, and Japan. The paper shows that the U.S. market share in most high-technology products, while still high, is declining. While industrial policy in other countries may have been a facilitating factor in this adverse development, the main explanation appears to lie in changing factor endowments, particularly the marked increase in the human capital/labor endowment ratios of Japan and Germany relative to that of the United States. When considering all the criteria relevant to trade policy, the differences between the high-technology industries bring into question the validity of lumping them into one sector for the purpose of strategic trade policy. Each industry needs to be treated separately. Their main common characteristic is intensity in human capital input. When they are viewed as one sector, a move to redress the declining U.S. lead calls for a domestic rather than a trade policy: massive U.S. investment in human capital and in research and development of the post-sputnik variety.