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We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneous-agent model of the world economy. In the long run, increases in government debt anywhere raise the world interest rate and increase private wealth everywhere. In the short run, a country with a larger-than-average fiscal deficit experiences both a large increase in private savings ("excess savings") and a small but persistent current account deficit (a slow-motion "twin deficit"). These patterns are consistent with the evolution of the world's balance of payments since the beginning of the Covid pandemic.
Debt is an important form of financing economic development, especially external debt is in the form of foreign exchange inflows. Exports may not bring in the necessary amount of foreign exchange needed for more imports, or foreign direct investment may not be sufficient for rapid economic development. Debt may bring in benefits/profits or may become a problem of liquidity or solvency. Debt is profitable when its usage brings in discounted streams of rates of return greater than its discounted streams of costs. Illiquidity is a short-run inadequacy of foreign exchange whereas solvency is a long-run problem in the same respect. Debt crisis - a long run solvency problem - refers to a situation where a country or a region undergo rescheduling; i.e. postponement of interest and principal repayments as a result of inability to repay debt. Rescheduling occurs often through the process of negotiations between debtors and creditors. A country can also declare a moratorium which is more severe because it means repayments of interest or both interest and principal are stopped temporarily until creditors agree to negotiate. The 1980s marked a decade where there were developing country-wide debt problem. The nature of debt problem broadly differ among regions. The Latin American countries went into debt crisis due to excessive borrowings in the international credit markets including the Euro-currency market. The debt crisis in the African region predates that of the Latin American's due to scarcity of foreign exchange earnings via exports. The ASEAN region has lesser debt problems of illiquidity in nature, thus perceived as creditworthy by over-viewers, facilitating more capital inflows in either the form of foreign investment or foreign debt.
This study documents evidence of a decline trend in the international competitiveness of US industry. The analysis identifies three groups of countries that account for most of the US trade deficit in the 1980s: the surplus countries, Germany and Japan; the East Asian NICs; and the Latin American debtors. In each case the author points to underlying structural problems contributing to the deficit. They call for quite different US policy responses, including microeconomic and industrial policies, incentives to revive productivity, growth and technological innovation, import surcharges, wage increases in the NICs, currency realignments, US capital exports, and debt relief. A pragmatic policy approach, with efforts to open foreign markets, aims to achieve the greatest possible reduction in the trade deficit with the lowest possible cost from macroeconomic adjustments. The author urges the reversal of two adverse trends in his policy strategy: the decline in public sector investment and the decreasing progressivity of the tax code.
Authoritative takes on the most current and pressing issues in macroeconomics today. The NBER Macroeconomics Annual provides a forum for leading economists to participate in important debates in macroeconomics and to report on major developments in macroeconomic analysis and policy. The NBER Macroeconomics Annual brings together leading scholars to discuss five research papers on central issues in contemporary macroeconomics. First, Andrea Eisfeldt, Antonio Falato, and Mindy Xiaolan document the rise of a new class of worker that receives part of its labor income as equity-based compensation, its role in the recent decline in the labor share of income, and implications for the returns to skilled labor and the implied capital-skill complementarity. Next, Michael Bauer and Eric Swanson focus on monetary policy shocks and argue the correlation between estimated monetary surprises and previously available information can be explained by uncertainty about the parameters of the monetary policy rule. Using new data and methods they find effects of monetary policy on macroeconomic variables that are much larger than previously estimated. Job Boerma and Loukas Karabarbounis provide a framework for quantitatively exploring the gap in wealth between White and Black Americans over the past 150 years and examine the effectiveness of reparations as a tool for closing this gap. Guido Menzio considers workers who do not have rational expectations, and whose “stubborn” beliefs change the response of wages to technology shocks, resulting in sticky wages. He finds that the larger the fraction of workers with stubborn beliefs, the more volatile unemployment is. Finally, Rishabh Aggarwal, Adrien Auclert, Matthew Rognlie, and Ludwig Straub investigate the growth—particularly in the United States—of private savings, current account deficits, and fiscal deficits after 2020. They argue that fiscal deficits lead to large and persistent increases in private savings and current account deficits.
Global current account balances—the overall size of current account deficits and surpluses—continued to widen in 2021 to 3.5 percent of world GDP, and are expected to widen again this year. The IMF’s multilateral approach suggests that global excess balances narrowed to 0.9 percent of world GDP in 2021 compared with 1.2 percent of world GDP in 2020. The pandemic has continued to affect economies’ current account balances unevenly through the travel and transportation sectors as well as a shift from services to goods consumption. Commodity prices recovered from the COVID-19 shock and started rising in 2021 with opposite effects on the external position of exporters and importers, a trend that the war in Ukraine is exacerbating in 2022. The medium-term outlook for global current account balances is a gradual narrowing as the impact of the pandemic fades away, commodity prices normalize, and fiscal consolidation in current account deficit economies progresses. However, this outlook is highly uncertain and subject to several risks. Policies to promote external rebalancing differ with positions and needs of individual economies.
978-0-88132-729-8, PIIE, IIE, Peterson Institute for International Economics, US-China Cooperation in a Changing Global Economy, CF40, Adam S. Posen, China-US Economic Cooperation, Policy Changes, US Fiscal Policy, US Economy, Trump Administration, Exchange Rates, Finance, International Monetary System, G-20 Cooperation, Trade and Investment, US-China Trade Disputes, wto, bilateral Investment Treaty, fdi, Trade Wars
The book presents and further develops basic principles and concepts in international finance and open economy macroeconomics to make them more relevant for emerging and developing economies (EDEs). The volume emphasises the necessity of greater knowledge of context as populous Asian economies integrate with world markets, as well as the rapidly changing nature of the area due to rethinking after the global financial crisis. It addresses a host of themes, including key issues such as exchange rate economics, macroeconomic policy in an open economy, analytical frameworks for and experience of EDEs after liberalisation, the international financial system, currency and financial crises, continuing risks and regulatory response. This book will be useful to scholars and researchers of economics, especially in macroeconomics, business and finance and development studies.
A complete guide to key market features and their impact on each of the main areas of investment This comprehensive guide offers practical advice on how to predict and manage market risk and how to allocate assets for the best performance under different market conditions. The Investor's Guide to Market Fundamentals covers both the theory and practice of this often-complicated subject, and gives readers a reliable source of market information.
The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.