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Home / Tag Archives: International Macroeconomics: Exchange Rates, International Debt, etc.

Tag Archives: International Macroeconomics: Exchange Rates, International Debt, etc.

The strange endgame of protectionism

When Steve Bannon was still advising President Trump, he advocated a traditional form of economic nationalism. The goal was to boost manufacturing in America and reduce the trade deficit. One traditional argument against US protectionism is that it would damage American farmers, an important export sector. In the past two years, the Trump administration has moved increasingly far from that vision, promoting policies tailor made to increase the trade deficit and...

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How much has Brexit uncertainty slowed growth?

While I did not think Brexit was a good idea, I also did not expect the vote to trigger a UK recession. Instead, I argued that it would slightly reduce the UK’s long run growth rate, and cited the steep fall in the pound as evidence for that claim. In my view, recessions in big diversified economies such as the UK are mostly caused by tight money, with supply shocks playing only a modest role. There have been occasional news stories about foreign investment in the UK...

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A Powerful Argument from Don Boudreaux

An old, standard argument against trade deficits is that they are financed by foreign capital inflows that represent debt to be reimbursed in the future. In this perspective, an American trade deficit gives the foreign owners of the incoming capital a claim to future American production. Don Boudreaux and other economists have argued that foreign capital inflows do not literally “finance” American imports. One reason is that foreign investment in America is mostly...

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How have US tariffs impacted China?

The Financial Times has an interesting story discussing the impact of recent US tariffs on Chinese exports to the US: Donald Trump’s first sally in the skirmish was to impose a 25 per cent tariff on 818 Chinese product lines, including electrical equipment, machinery and vehicles, in July 2018. This wave purportedly covered an annual $34bn of Chinese exports, although analysts at Standard Chartered calculated they amounted to just $16.4bn in 2017. Mr Trump then...

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If you don’t want people to believe you will do X, then don’t do X

There are two ways of thinking about the relationship between monetary policy tools and monetary outcomes. Standard approach: The standard view is that lower interest rates lead to higher NGDP growth. In addition, a bigger monetary base leads to a higher NGDP. Alternate view: An alternative approach starts from the assumption that the central bank will do whatever it takes to hit its target, and then asks what the equilibrium interest rate, or equilibrium monetary...

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Social Nirvana

Imagine a country where all resources (labor, land, capital) are used to produce goods and services for foreigners. Its residents, good patriots, import nothing and put all the money they earn from exports under their mattresses. Exports are 100% of GDP, there are no imports, and the trade surplus (in goods and services) is also 100% of GDP. Social nirvana? Of course not. Our patriots would have nothing to eat and no house to live in. They would be well advised to use...

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No exit?

James Hamilton provided one of my all-time favorite quotations: You could argue that if the Fed is doing its job properly, any recession should have been impossible to predict ahead of time. In many cases, the disasters that strike us are unexpected.  The 1973 oil embargo.  The 9/11 attacks.  The Lehman moment. Many of the disasters that are anticipated, somehow fail to arrive.  I recall a feeling in 2015 that China was sliding into recession.  I recall that many...

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Italy vs the EU (again)

Italy is in a stalemate with the European Commission on its budget law, with the new “populist” government trying to twist the arm of the Commission. Yet the two parties that support the government, the Northern League and the Five Stars Movement, seem to be thinking mostly in terms of the upcoming (May 2019) European elections. They want to increase their consensus as defenders of national sovereignty against the all powerful Brussels. On Politico I try to explain...

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Three contrarian opinions

1. Chokers are the best people It's a given that NBA players try as hard as they can in the playoffs. There's a lot at stake, and they all give it their best effort. But things are very different in the regular season. Some teams try really hard, while other teams are simply lazy, depriving their fans of what they deserve. Because of this inconsistency of effort, in the playoffs one often sees teams...

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I warned the Swiss that this would happen

After pegging the Swiss franc at 1.2 per euro for a period of about three years, the Swiss National Bank suddenly revalued the franc sharply higher in January 2015, in a surprise contractionary move. They also cut interest rates sharply, a near perfect (and very rare) example of NeoFisherism in action. In the months leading up to the revaluation, the SNB had accumulated significant foreign reserves, as it...

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