Tuesday, March 29, 2005

WSJ.com - Discussion of US overseas position.

WSJ.com - Does Overseas Appetite for Bonds Put the U.S. Economy at Risk?: "Much has been said in recent months about the growing U.S. budget, but less has been said about how the U.S. is managing the deficit, keeping the government functioning by selling Treasury bonds -- lots of them. But will these IOUs keep things running smoothly?"

Discussion between Nouriel Roubini and David Altig over the risks to the US from the current account position. Lots of very useful links.

Thursday, March 24, 2005

Women's participation in the labour market

Mahalanobis: "ECB WP: GDP per head in Europe [EU-15] is around 65% that of the United States and the main reason for this gap is the relatively low labour utilisation in European countries. In particular, Europeans work 13% less hours on average than Americans do. While the existence of the gap on hours worked per head is not disputed, there is some disagreement as how to explain it. Some argue that the gap reflects social norms according to which Europeans value leisure more than Americans do, while others put emphasis on the influence of the institutional framework, in particular the disincentive effect of taxes on labour. This paper indirectly contributes to this debate by analysing another aspect behind the relatively low labour utilisation in Europe, i.e. low participation rates. Concretely, it examines the determinants of women�s participation in Europe."

Wednesday, March 23, 2005

Wolfgang Munchau: The dollar has fallen enough

FT.com / Comment & analysis / Columnists - Wolfgang Munchau: The dollar has fallen enough: "A more detailed analysis suggests that the trade adjustment channel is still more important than the financial adjustment channel. But the financial adjustment channel presently acts as a kind of automatic stabiliser. As long as foreign investors, especially foreign central banks, are willing to hold US assets, the dollar's exchange rate does not need to devalue by as much as would have been the case if all the adjustment had to come from trade alone. Put another way, the sustainable current account deficit may be higher than otherwise thought.
Changes in the financial adjustment channels occur primarily through the exchange rate, and it is therefore tempting to ask the question: can we predict future exchange rates by looking at the ratio of net exports and net foreign assets? Econometric analysis suggests that this may indeed be so. "

Saturday, March 12, 2005

Ben Bernanke Thinks We Ought To Worry A Little Less via macroblog

macroblog: More Trade Deficits -- And Why Ben Bernanke Thinks We Ought To Worry A Little Less: "Most interesting, however, is that the experience of the United States in recent years is not so nearly unique among industrial countries as one might think initially... a number of key industrial countries other than the United States have seen their current accounts move substantially toward deficit since 1996, including France, Italy, Spain, Australia, and the United Kingdom"

One fact of the international scene is that the increase in current account positions of UK and Australia. The Australian current account deficit is even larger than that of the US (in terms of percent of GDP). It is also the case that many important developed nations are saving more - Germany, Japan. Unless we have a downward lurch in global output (which seems likely at some point) someone must do less saving to compensate.

Monday, March 07, 2005

FT.com / Business / US - BIS reveals extent of shift out of dollar assets

FT.com / Business / US - BIS reveals extent of shift out of dollar assets

Is this due to the fact that the alternative currencies have risen in value vs the USD? Not clear, but I would suspect that this a factor that makes the change less dramatic than the headline.

Argentina's restructuring

Argentina's debt restructuring: "IN 1902, after Venezuela defaulted on its sovereign debt, German, British and Italian gunboats blockaded the country's ports until the government paid up. In 1881, after the Ottoman empire failed to honour its obligations, European powers simply seized Ottoman customs houses and helped themselves to their due. The options available to more than 500,000 aggrieved creditors of the Republic of Argentina, which defaulted on bonds worth $81 billion in December 2001, were more limited. After much bluff and bluster, a large majority of them meekly surrendered their claims before a deadline on February 25th, in exchange for new bonds worth roughly 35 cents on the dollar."

FT.com / Comment & analysis / Columnists - Martin Wolf: Argentina holds a weak hand

His main points: 1) If a sovereign decides that it is more painful to service debts than default, only another sovereign can prevent it.
2) Lending to sovereigns is risky. 3) Moral hazard worries are overdone. 4) No default may be more painful than default. 5) Once default is optimal, a deep default is the most optimal. 6) There is a role for the IMF in identifying what is a sustainable level of debt. 7) There is no need for a mechanism for sovereign debt restructuring.

Thursday, March 03, 2005

The Big Picture: The Mystery of the Awful Economists

The Big Picture: The Mystery of the Awful Economists

Interesting. I am inclined to believe that this is something to do with consistently over-stating growth forecasts and understating productivity forecasts, but, as you say, these are well known factors. Many of the other factors that you mention seem to be related to productivity. Incidently, here is an article about the ability of futures markets to provide insight into economic data pdf file.

Wednesday, March 02, 2005

Asian central bank reserves

Brad DeLong's Website: Notes on Blanchard, Giavazzi, and Sa, "The U.S. Current Account and the Dollar": "But isn't it more likely that when the peg collapses Asian central banks' desires to hold dollar assets will be severely diminished, and that the foreign demand curve for dollar-denominated assets will move back to its original un-shifted-out position? In that case we have:"

Also a very good discussion on recent practice by the Chinese central bank at Brad Setser's excellent site

I think that the scale of USD buying by the Chinese central bank highlights the size of the inflow into China. Some of this is clearly speculative given the widespread talk that there will be an eventual revaluation. I think that it is pretty clear that the Chinese have to purchase EUR-USD just to maintain the existing balance of their reserves and that they, along with other Asian central banks, are more concerned about exports that an eventual loss on the FX reserves. Even if there is an eventual crisis and the USD starts to collapse as the Chinese peg is relaxed, it is hard to imagine Asian central banks adding to the crisis by selling USD reserves. It would be like the Bundesbank selling ITL or GBP and buying NGL during the ERM crisis - financially astute, but politically embarassing.

Were Bid-Ask Spreads in the FX Market Excessive During the Asian Crisis?

Were Bid-Ask Spreads in the FX Market Excessive During the Asian Crisis?: "Summary: Bid-ask spreads for Asian emerging market currencies increased sharply during the Asian crisis. A key question is whether such wide spreads were excessive or explained by models of bid-ask spreads. Precrisis estimates of standard models show that spreads during the crisis were in most cases tighter than spreads predicted by the models and there are few cases of excessive spreads. The result is largely explained by the substantial increase in exchange rate volatility during the crisis and to some extent by the level change. The empirical models have greater explanatory power for emerging- than for mature-market currencies."