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Author:Harry Wheeler 

Discussion Paper
Inflation and Japan's Ever-Tightening Labor Market
Japan offers a preview of future U.S. demographic trends, having already seen a large increase in the population over 65. So, how has the Japanese economy dealt with this change? A look at the data shows that women of all ages have been pulled into the labor force and that more people are working longer. This transformation of the work force has not been enough to prevent a very tight labor market in a slowly growing economy, and it may help explain why inflation remains minimal. Namely, wages are not responding as much as they might to the tight labor market because women and older workers tend to have lower bargaining power than prime-age males.
AUTHORS: De Paoli, Bianca; Harry Wheeler; Klitgaard, Thomas
DATE: 2016-11-14

Discussion Paper
Migration in Puerto Rico: Is There a Brain Drain?
Given Puerto Rico?s long-term economic malaise and ongoing fiscal crisis, it is no wonder that out-migration of the Island?s residents has picked up. Over the past five years alone, migration has resulted in a net outflow of almost 300,000 people, a staggering loss. It would make matters worse, however, if Puerto Rico were losing an outsized share of its highest-paid workers. But we find that, if anything, Puerto Rico?s migrants are actually tilted somewhat toward the lower end of the skills and earnings spectrum. Still, such a large outflow of potentially productive workers and taxpayers is an alarming trend that is likely to have profound consequences for the Island for years to come.
AUTHORS: Abel, Jaison R.; Deitz, Richard; De Giorgi, Giacomo; Harry Wheeler
DATE: 2016-08-09

Discussion Paper
Puerto Rico's Shrinking Labor Force Participation
A key concern about Puerto Rico?s prospects is that its labor force participation rate, which is the percentage of the adult population either working or looking for work, has fallen sharply. Looking at the data shows that this decline cannot be attributed to any particular demographic segment. Instead, it is the consequence of an aging population, accelerated by a falling birth rate and outmigration of a relatively young cohort. Expected demographic trends will continue to put downward pressure on the participation rate over the medium term, creating a challenging headwind for the economy to overcome.
AUTHORS: Bram, Jason; Harry Wheeler
DATE: 2016-08-10

Discussion Paper
The Rapidly Changing Nature of Japan's Public Debt
Japan?s general government debt-to-GDP ratio is the highest of advanced economies, due in part to increased spending on social services for an aging population and a level of nominal GDP that has not increased for two decades. The interest rate payments from taxpayers on this debt are moderated by income earned on government assets and by low interest rates. One might think that the Bank of Japan?s purchases of government bonds would further ease the burden on taxpayers, with interest payments to the Bank of Japan on its bond holdings rebated back to the government. Merging the balance sheets of the government and the Bank, however, shows that the asset purchase program alters the composition of public debt, with reserves in the banking system replacing government bonds, but not the amount of the debt taxpayers must pay interest on.
AUTHORS: Klitgaard, Thomas; Harry Wheeler
DATE: 2016-06-22

Discussion Paper
What Tracks Commodity Prices?
Various news reports have asserted that the slowdown in China was a key factor driving down commodity prices in 2015. It is true that China?s growth eased last year and, owing to its manufacturing-intensive economy, that slackening could reasonably have had repercussions for commodity prices. Still, growth in Japan and Europe accelerated in 2015, with the net result that global growth was fairly steady last year, casting doubt on the China slowdown explanation. An alternative story relies on the strong correlation between the dollar and commodity prices over time. A simple regression shows that both global growth and the dollar track commodity prices, and in this framework, it is the rise of the dollar that captures last year?s drop in commodity prices. Thus a forecast of stable global growth and a relatively unchanged dollar suggests little change in commodity prices in 2016.
AUTHORS: Harry Wheeler; Klitgaard, Thomas
DATE: 3/21/2016

Discussion Paper
The Turnaround in Private and Public Financial Outflows from China
China lends to the rest of the world because it saves much more than it needs to fund its high level of physical investment spending. For years, the public sector accounted for this lending through the Chinese central bank?s purchase of foreign assets, but this changed in 2015. The country still had substantial net financial outflows, but unlike in previous years, more private money was pouring out of China than was flowing in. This shift in private sector behavior forced the central bank to sell foreign assets so that the sum of net private and public outflows would equal the saving surplus at prevailing exchange rates. Explanations for this turnaround by private investors include lower returns on domestic investment spending and a less optimistic outlook for China?s currency.
AUTHORS: Klitgaard, Thomas; Harry Wheeler
DATE: 5/9/2016

Discussion Paper
The End of China's Export Juggernaut
China has been an exporting juggernaut for decades. In the United States, this has meant a dramatic increase in China?s share of imports and a ballooning bilateral trade deficit. Gaining sales in the United States at the expense of other countries, Chinese goods rose from only 2 percent of U.S. non-oil imports in 1990 to 8 percent in 2000 and 17 percent in 2010. But these steady gains in U.S. import share have stopped in recent years, with China even losing ground to other countries in some categories of goods. One explanation for this shift is that Chinese firms now have to directly compete against manufacturers in high-skill developed countries while also fending off competition from lower-wage countries, such as Vietnam. This inability to make additional gains at the expense of other countries means that exports don?t contribute as much to China?s overall growth as they used to.
AUTHORS: Harry Wheeler; Klitgaard, Thomas
DATE: 2017-04-12

Discussion Paper
The Need for Very Low Interest Rates in an Era of Subdued Investment Spending
Why have interest rates stayed low for so long after the financial crisis?and will they remain low for the foreseeable future? One way to answer these questions is to use the accounting identity that global saving must equal physical investment spending and argue that low rates have been necessary to prop up investment spending enough to match saving. From this perspective, the extent of any recovery in interest rates depends on whether weak investment spending is driven primarily by secular demographic trends that are a long-term drag on aggregate demand or by the residual effects of the financial crisis.
AUTHORS: Harry Wheeler; Klitgaard, Thomas
DATE: 2017-03-22

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