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Trade and Investment Policy Watch The Global Trade Slowdown and Secular Stagnation
Caroline Freund — April 20, 2016
Global trade volume plummeted 13 percent in 2009, many times the 2 percent decline in real GDP growth experienced in the depths of the Great Recession. While the trade collapse shocked economists, the slowdown in trade growth since 2011 has been an even bigger surprise.

North Korea: Witness to Transformation Lee Sigal on North Korea
Stephan Haggard — April 20, 2016
While in New York at the Korea Society, I had a chance to catch up with Lee Sigal. Since his Disarming Strangers, Sigal’s many writings on North Korea have had a single, overarching theme: missed opportunity. In a detailed blow-by-bl ...

RealTime Economic Issues Watch Blue Skies for Business Tax Reform? Part 2: Lower the Corporate Tax Rate
Gary Clyde Hufbauer and Lucy Lu — April 19, 2016
In a previous post, we showed that 2017 could be auspicious for modest corporate tax reform. Reform might combine three elements: a lower corporate tax rate; a tax repatriation holiday; and a larger role for "pass-through" taxation. This blog d ...

RealTime Economic Issues Watch Blue Skies for Business Tax Reform? Part I: An Overview
Gary Clyde Hufbauer, Lucy Lu, and Tyler Moran — April 19, 2016
The year 2017 could be auspicious for badly needed reforms in US taxation of business income. Four forces underpin a blue skies forecast: Foremost, House Speaker Paul Ryan is a fervent advocate of reform, he knows the tax code better than almost any other legislator, and Republica ...

Peterson Perspectives Interview Saudi Retreat on Dollar Would Hurt Own Economy
Joseph E. Gagnon and Edwin M. Truman — April 18, 2016
Saudi Arabia has warned it may have to divest its large holdings of US dollar assets, but Edwin M. Truman and Joseph E. Gagnon say such a move would be self-defeating.

Peterson Perspectives Interview Impeachment: End of Line for Brazilian President Rousseff
Monica de Bolle — April 18, 2016
Monica de Bolle says the Brazilian president's impeachment puts an end to recent turmoil and uncertainty but warns the new government will have a difficult task ahead rebuilding an economy still deep in recession.

Trade and Investment Policy Watch TPP Benefits for Workers Far Outweigh Costs
Robert Z. Lawrence — April 18, 2016
Median household income in the United States has stagnated for decades, and reaping more gains from trade could be one way to boost it. Trade supports higher-paying jobs; increases innovation and productivity growth, which are necessary to raise living standards; and expands the purchasing power of consumers.

RealTime Economic Issues Watch Better than Plaza?  Reflections on Today's Currency Constellation with Lawrence Summers
Adam S. Posen — April 18, 2016
Since the time that we took on the project of publishing International Monetary Cooperation: Lessons from the Plaza Accord after Thirty Years, we found our analytical work has become extremely topical.  Concerns over countr ...

RealTime Economic Issues Watch Europe's Welcome Attempt to Harmonize Rules on Asylum Seekers
Jacob Funk Kirkegaard — April 15, 2016
Europe's migration crisis has reinforced the importance of recent proposals by the European Commission to overhaul the so-called Dublin Rules for treatment of asylum seekers in the European Union (EU). The ...

RealTime Economic Issues Watch Migration emergency over (for now), but not because of the EU-Turkey deal
Jacob Funk Kirkegaard — April 15, 2016
Following the March 20 deal between the European Union (EU) and Turkey, the refugee flow from Turkey to Greece has declined from the levels in the earlier phases of the migration crisis in late 2015 and early 2016. The trend will likely lower the political pressure on many European leaders who ne ...

Peterson Perspectives Interview How Much Bank Capital Is Enough?
William R. Cline — April 14, 2016
William R. Cline says new international norms developed after the crisis fall short of optimal levels of bank capital, but US financial institutions are already fairly close to where they need to be.

Op-ed Slow Growth Is a Fact of Life in the Post-Crisis World
Olivier Blanchard — April 13, 2016
Once the acute phases of the financial and euro crises were over, it was clear that it would take time for advanced economies to recover. The history of past financial crises gave a clear warning that recovery would typically be long and painful.

Trade and Investment Policy Watch Direct Trade Impact of Brazil’s Recession
Paolo Mauro and Jan Zilinsky — April 12, 2016
Brazil’s real GDP fell by 3.5 percent in 2015 and a similar decline is projected this year. Which countries suffer the most from Brazil’s recession in terms of impacted trade?

News Release Patrick Honohan Joins the Peterson Institute for International Economics
April 12, 2016
WASHINGTON—The Peterson Institute for International Economics is pleased to welcome Patrick Honohan as a nonresident senior fellow beginning in April 2016. Most recently, Honohan was the governor of the Central Bank of Ireland during 2009&nd; ...

Trade and Investment Policy Watch Misconceptions on the Campaign Trail: Benefits of Trade Agreements
Lindsay Oldenski and Theodore H. Moran — April 12, 2016
In the run-up to the 2016 US presidential election, candidates on both the right and the left have been taking strong anti-trade and foreign investment positions. One assertion is that trade agreements like the Trans-Pacific Partnership (TPP) benefit only the rich and not low- and middle-income households.

Trade and Investment Policy Watch Misconceptions on the Campaign Trail: US Manufacturing
Lindsay Oldenski and Theodore H. Moran — April 11, 2016
In the run-up to the 2016 US presidential election, candidates on both the right and the left have been taking strong anti-trade and foreign investment positions. One assertion on the campaign trail is that globalization is responsible for the decline of the US manufacturing base.

Policy Brief 16-4 Quantitative Easing: An Underappreciated Success [pdf]
Joseph E. Gagnon — April 11, 2016
Gagnon reviews the outpouring of research on quantitative easing (QE) and its effects and finds overwhelming evidence that QE does ease financial conditions and supports economic growth. QE can be especially powerful during times of financial stress, but it has a significant effect in normal times with no observed diminishing returns.

News Release PIIE Experts Forecast Slow, Steady Growth for the Global Economy in 2016–17
April 11, 2016
Washington—Economists at the Peterson Institute for International Economics (PIIE) forecast slow but steady growth for the global economy in 2016–17, with recessions in a few emerging economies determined by country-specific, domest ...

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Korea's decision to delay joining the Trans-Pacific Partnership (TPP) talks was a tactical mistake, says Jeffrey J. Schott. As a major trading nation, it stands to reap large gains from increased trade and investment with TPP countries and should opt to join the TPP as soon as the window for entry reopens.
See also:
TPP Talks: Getting to Yes
What You Need to Know about the Trans-Pacific Partnership

After the closing of banks in Greece on June 28 in the run-up to the referendum of July 5 and its associated risk of Grexit, the combination of large new bank recapitalization needs and the downgrading of growth prospects and plausible fiscal performance caused the IMF to insist that further debt relief will now be necessary. William R. Cline examines whether and to what extent additional debt relief is needed in Greece under the new circumstances.

Antoine Gervais and J. Bradford Jensen use a unique dataset on the distribution of output and demand across regions of the United States to estimate the share of economic activity exposed to international competition and find that accounting for tradable services nearly doubles the international trade exposure of the American economy.

In an Economist debate forum, Adam S. Posen explains that it is natural for economies to grow and a sign of disorder when they do not. Furthermore, he argues that growth in rich countries helps alleviate, not aggravate, the global problems of climate change, water scarcity, and poverty reduction.

Sanctions on Iran: Why They Worked and Why a 'Snapback' May Not Work
Gary Clyde Hufbauer explains that economic sanctions on Iran resulted from complex financial and diplomatic activity by Washington, complicating the challenge should sanctions have to be reimposed.

Simon Johnson testifies that if authorities are unwilling or unable to simplify and downsize too-big-too-fail banks, they should substantially increase the required amount of loss absorbing equity for those firms.

Adam S. Posen testifies before the Senate Committee on Banking, Housing, and Urban Affairs that the international Financial Stability Board [pdf] is a useful check and occasional corrective to the US Financial Stability Oversight Council process, and it can also produce some good international standards, thus serving US economic interests. The FSB's attempt to extend Solvency II, the European Commission's regulation for insurance firms, to global application, is however a mistake.

The Federal Reserve and other regulators seem to have followed both the letter and spirit of the Dodd-Frank financial reform [pdf] instruction to more carefully regulate bank holding companies with more than $50 billion in total assets, says Simon Johnson in testimony before the House Financial Services Committee.

Under Prime Minister Orbán, economic policy in Hungary has increased the role of the state in many sectors of the economy, either through outright nationalization or through aggressive regulatory changes. Policy Brief 15-11 by Simeon Djankov.

Gary Clyde Hufbauer and Cathleen Cimino-Isaacs review the main elements of the Trans-Pacific Partnership and summarize the most difficult issues remaining in the last leg of negotiations.

The World Trade Organization (WTO) needs a grand bargain [pdf] to pursue 21st century pacts that keep policymakers, business leaders, and the public engaged, while answering the legitimate demands of developing members to reduce longstanding distortions to farm trade and manufactures. Report by Gary Clyde Hufbauer, Euijin Jung, Sean Miner, Tyler Moran, and Jeffrey J. Schott.

Brazil's state-owned development bank BNDES has evolved into an institution that provides long-term credit to very large and profitable companies, helping to perpetuate a cycle of high interest rates and relatively low investment rates, writes Monica de Bolle.

Caroline Freund and Sarah Oliver find that harmonizing automobile regulations under the Trans-Atlantic Trade and Investment Partnership would increase US-EU auto trade by at least 20 percent, resulting in national income gains for both partners together of over $20 billion per year in the long run. Policy Brief 15-10.

William R. Cline warns that findings of recent studies from the IMF and Bank for International Settlements that “too much finance” reduces growth should be viewed with considerable caution. Policy Brief 15-9.

New estimates of fundamental equilibrium exchange rates (FEERs) find the major currencies are now misaligned, with the US dollar moderately overvalued and the euro and yen modestly undervalued. However, the Chinese yuan is no longer undervalued. Policy Brief 15-8 by William R. Cline.

William R. Cline examines the basis for concerns about inflation caused by quantitative easing in terms of the quantity theory of money, and finds that inflation has remained low despite a large buildup in the Fed's balance sheet not because the velocity of broad money has collapsed, but because the money multiplier has done so. Policy Brief 15-7.

José De Gregorio finds that the recent growth slowdown in Latin America was not caused by external factors but was mostly cyclical in nature and a result of low productivity growth. Policy Brief 15-6.

Global income inequality will decline further in 2035, largely owing to rapid economic growth in the emerging-market economies, with India, China, and Sub-Saharan Africa reaping the most gains. Working Paper 15-7 by Tomas Hellebrandt and Paolo Mauro.

William R. Cline examines the empirical evidence on the Modigliani-Miller capital structure irrelevance proposition as applied to the banking sector. The central question he addresses is whether more highly capitalized banks do indeed enjoy lower costs of equity capital. Working Paper 15-8.

Avinash D. Persaud assesses the risks and dangers of Solvency II, the new EU directive for regulating insurance companies, and recommends an alternative approach. Policy Brief 15-5.

William R. Cline finds that the financial sectors in Asian emerging-market economies are now relatively unlikely to provoke new financial crises, either because of reforms after the East Asian financial crisis in the later 1990s or because of the dominance of state-owned banks not subject to bank runs. Working Paper 15-5.

Nicholas Borst and Nicholas R. Lardy trace the evolution of China's financial system away from a traditional bank-dominated and state-directed financial system toward a more complex, market-based system and analyze the optimal sequence of financial reforms needed to manage the new risks accompanying this evolution. Working Paper 15-4.

The vital role of innovation and knowledge in Asia's productivity growth and hence economic growth makes it critical that its financial system be able to channel more funds at lower cost to entrepreneurs and new firms in the future. Working Paper 15-3 by Gemma B. Estrada, Marcus Noland, Donghyun Park, and Arief Ramayandi.

New Book: The Great Rebirth: Lessons from the Victory of Capitalism over Communism

Anders Åslund
Simeon Djankov, eds.

Release Event | News Release

In NAFTA 20 Years Later, part of a new series of publications called PIIE Briefings, Institute scholars and experts assess the record two decades after the approval of the North American Free Trade Agreement.

New Book: Bridging the Pacific: Toward Free Trade and Investment between China and the United States

by C. Fred Bergsten, Gary Clyde Hufbauer, and Sean Miner, assisted by Tyler Moran

Release Event | News Release