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This paper characterises the world real interest rate as a common trend in real interest rates in Germany, Japan, and the United States even if there is scepticism in the existence of the world real interest. In theoretical terms, real interest parity is based on the presumed validity of uncovered interest parity and purchasing power parity, but the empirical evidence of these parity conditions is not strong and thus the presence of the world real interest rate. The significance of this paper is, therefore, to visualise the current level of international economic integration by characterising the approximate world real interest rate as a single common trend, taking full advantage of the fact that real interest rates in three large open economies have been moving together sharing a common component even if their levels are distinctively different. This single common trend has desirable properties as the world real interest rate. First, it is a parsimonious and monotonically increasing function of the real interest rates in three large open economies that can be world price or interest rate maker, in contrast with small open economies. Second, it is moving together with national real interest rates one for one. Hence, the deviations from the world rate are temporary because common trend represents the common driving force of national rates over the long run period. Third, it can explain as high a proportion as possible of the variances of national rates.
Economics for Today 6e simplifies the array of confusing economic analyses and presents a straightforward and balanced approach that effectively teaches the application of basic economics principles. Only essential material is included in the book and key concepts are explained in clear and simple terms. Written in an engaging and user-friendly manner, the book is designed for non-majors (although can also be used in these courses) with a continued focus on ethics in economics, sustainability and environmental economics, housing stress, development, health, happiness and debt crises. Economics for Today 6e is also available in MindTap, a personalised eLearning solution. MindTap provides interactive graph builders, online tests, video content and access to Aplia to build student confidence and give you a clear picture of their progress.
'. . . it offers expanded coverage of issues from pure international economics to certain aspects of political economy. . . . the present book is a fine work and certainly makes a valuable contribution to the growing list of books addressing globalization. Students of globalization and last but not least practitioners and politicians, as well as diplomats working in international organizations, can learn from it.' – Marjan Svetlicic, Journal of International Relations and Development This authoritative Handbook provides a thorough account and analysis of the important issues relating to the globalization of the international economy. The increasing interdependence of the world's economies has caused a breakdown in national economic boundaries and a freer access to goods, services and labour. This comprehensive book, written by experts in the field, addresses major issues associated with this international economic integration. This reference work considers: • global growth including inequality, saving, foreign direct investment, external debt and multinational corporations • regionalization and globalization of trade such as the role of international institutions, external economies of scale and trading blocs • transition to market economies in Central and Eastern Europe, the former Soviet Union and East Asia • internationalization and integration of markets including the financial, capital, labour and agricultural markets • global environmental and resource problems including transboundary pollution, the implication of North-South trade for natural resource depletion and environmental degradation, and the impact of energy markets on global growth, pollution and economic stability.
Emerging markets are more volatile and face different types of shocks, in size and nature, compared to their developed counterparts. Accurate identification of the stochastic properties of shocks is difficult. We show evidence suggesting that uncertainty about the underlying stochastic process is present in commodity prices. In addition, we build a dynamic stochastic general equilibrium model with informational frictions, which explicitly considers uncertainty about the nature of shocks. When formulating expectations, the economy assigns some probability to the shocks being temporary even if they are actually permanent. Parameter instability in the stochastic process implies that optimal saving levels (debt holdings) should be higher (lower) compared to a process with fixed parameters. Imperfect information about the nature of shocks matters when commodity GDP shares are high. Thus, economic policies based on misperception of the underlying regime can lead to substantial over/under saving with important associated costs.
The US twin deficit, Western European economic integration, Eastern Europe's transition towards a market economy, the debt burden of the Less Developed Countries, the growing and deepening discrimination against the rest of the world by new homogeneous areas such as the North America free trade area, the new Europe, and Japan are the issues at the heart of global disequilibrium in the world economy. This book brings together leading economists to analyse these issues and further the debate on the need for sound economic policies to avoid a crash on a global scale.
This original and panoramic book proposes that the underlying forces of demography and globalisation will shortly reverse three multi-decade global trends – it will raise inflation and interest rates, but lead to a pullback in inequality. “Whatever the future holds”, the authors argue, “it will be nothing like the past”. Deflationary headwinds over the last three decades have been primarily due to an enormous surge in the world’s available labour supply, owing to very favourable demographic trends and the entry of China and Eastern Europe into the world’s trading system. This book demonstrates how these demographic trends are on the point of reversing sharply, coinciding with a retreat from globalisation. The result? Ageing can be expected to raise inflation and interest rates, bringing a slew of problems for an over-indebted world economy, but is also anticipated to increase the share of labour, so that inequality falls. Covering many social and political factors, as well as those that are more purely macroeconomic, the authors address topics including ageing, dementia, inequality, populism, retirement and debt finance, among others. This book will be of interest and understandable to anyone with an interest on where the world’s economy may be going.
This book provides a comprehensive overview of the financial integration of emerging economies through an in-depth analysis of the international monetary system, how it impacts capital flows and exchange rates, and its implications for policy making. The financial integration of emerging economies has been a remarkable development of the past two decades. The growth of cross-border transactions and asset ownership, not least through the accumulation of foreign exchange reserves, has put many of these countries in a more prominent, if still peripheral, position within the global financial system. This has not been a smooth process, as integration has been marked by cyclical waves of capital flows, with financial and currency instability often accompanying the acute phases of these cycles. While conventional economic theory traditionally sees financial integration as a positive development, Post-Keynesian economists, working in the tradition of Keynes, Minsky and Kalecki, have long taken a more sceptical viewpoint. By centring the analysis of financial dynamics on concepts as liquidity, uncertainty, balance-sheet structures and institutions, Post-Keynesian theory highlights the intrinsic character of shocks imposed by financial integration upon emerging economies, and their implications for economic growth and distribution. This book demonstrates that these analyses can be fruitfully used to gain a better understanding of financial (in)stability and economic development in emerging economies as they integrate into the global financial system. This work provides key reading for students and scholars of economics, political economy and finance that are interested in the financial integration of emerging economies, and how the heterodox tradition of Post-Keynesian economics contributes to its analysis.
This paper examines how the effects of fiscal policies are transmitted internationally. The analysis emphasizes that fiscal shifts of recent years constitute major disturbances to saving and investment flows. An increase in a country's fiscal deficit corresponds to a higher level of public sector dissaving. For increased foreign saving to enter through the capital account, the current account deficit must rise via an appreciating real exchange rate. An autonomous rise in investment, such as that induced by US tax measures passed in 1981–1982, produces qualitatively similar effects in the short run. Simulations suggest that a permanent fiscal deficit reduction of 1 percent of capacity output in any one of the three largest industrial countries produces a significant decline in real interest rates and a large initial depreciation in that country's currency. US tax incentives for investment would induce higher interest rates and an appreciated dollar. Simulations of the combined effects of increased US investment and observed movements in inflation-adjusted deficits in all three countries in 1981–1985 suggest that substantial fractions of these interest and exchange rate movements were related to shifts in fiscal policy.
The transmission mechanism of monetary policy explains how monetary policy works - which variables respond to interest rate changes, when, why, how, how much and how predictably. It is vital that central banks and their observers, worldwide, understand the transmission mechanism so that they know what monetary policy can do and what it should do to stabilize inflation and output. The volume sets out different aspects of the transmission mechanism. Some chapters scrutinize the relevance of practical issues such as asymmetries, recent structural changes and estimation errors using data on the USA, the Euro area and developing countries. Other chapters focus on modelling crucial aspects such as productivity, the exchange rate and the monetary sector. These issues are counterpointed by contributions that analyse monetary policy in Japan and the UK.
This is the ninth in an annual series assessing development issues. The world economy is entering its fourth year of growth since the recession of 1982. Yet the recovery is hesitant with many developing countries facing serious problems of adjustment. The recent decline in oil prices, interest rates, and inflation will provide a stimulus to developed and developing countries alike. But many debtor countries, particularly oil exporters, will find it hard to maintain growth in the near term. The effects of the recovery have been much weaker for many low-income Sub-Saharan countries. Part I of the report explores the policies required to restore growth in the developing world. It stresses the importance of developed countries maintaining the policies that have both reduced inflation and moderated distortions in their markets. Of concern however is the increase in international trade restrictions, if countries are to attain sustainable growth, the reform of domestic institutions must be accompanied by an effort towards international freer trade. Part 2 suggests that the gradual liberalization of trade should be a high priority for international action in agriculture. An examination of the policy options in developing countries suggests that economic stability and growth could be greatly enhanced by focusing on improved pricing and trade policies.