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Journal Article
Viewing the current account deficit as a capital inflow
With the 1998 current account deficit approaching $225 billion, attention is again focusing on the deficit's impact on U.S. jobs. Although a high deficit does adversely affect employment in export- and import-competing industries, it also means that considerable foreign capital is flowing into the United States, supporting domestic investment spending that stimulates growth and creates jobs.
Journal Article
The income implications of rising U.S. international liabilities
Although the United States has seen its net liabilities surge in recent years, its investment income balance has remained positive-largely because U.S. firms operating abroad earn a higher rate of return than do foreign firms operating here. The continuing buildup in liabilities, however, should soon push the U.S. income balance below zero. In that event, net income flows will begin to boost the nation's current account deficit instead of reducing it.
Journal Article
Exchange rates and profit margins: the case of Japanese exporters
When exchange rates shift, exporters must decide whether it is more important to maintain profit margins or to maintain stable export prices. This examination of Japanese exporters finds that these firms have taken a middle course: By altering their profit margins to some degree, the exporters moderate the exchange-rate-induced changes in prices seen by their foreign customers. The analysis finds that in the three major exporting industries - industrial machinery, electrical machinery, and transportation equipment - a 10 percent rise in the yen leads firms to lower profit margins on exports ...
Journal Article
Exchange rate changes and net positions of speculators in the futures market
Traders, strategists, and other participants in the currency markets continuously seek to understand and interpret short-term exchange rate movements. One data set frequently used in those efforts is a weekly report of net futures market positions held by speculators on the Chicago Mercantile Exchange. In this article, the authors pursue a transaction-oriented line of research to track short-term exchange rate moves. They examine the data set for six currencies over a ten-year period and document a strong contemporaneous relationship between weekly changes in speculators' net positions and ...
Journal Article
Asia's trade performance after the currency crisis
The Asian countries hit by the 1997-98 currency crisis experienced a sharp reversal of capital flows that forced their current account balances to move from deficit to surplus. This study of the trade flows of Indonesia, Malaysia, South Korea, and Thailand finds that steep declines in imports, measured in dollar terms, accounted for almost all of the improvements in current account balances. However, a fuller picture emerges when the authors analyze the trade flows according to the volume of goods being shipped and the prices of these goods. The analysis shows that several factors contributed ...
Discussion Paper
Would a Stronger Renminbi Narrow the U.S.-China Trade Imbalance?
The United States buys much more from China than it sells to China—an imbalance that accounts for almost half of our overall merchandise trade deficit. China’s policy of keeping its exchange rate low is often cited as a key driver of that country’s large overall trade surplus and of its bilateral surplus with the United States. The argument is that a stronger renminbi (the official currency of China) would help reduce that country’s trade imbalance with the United States by lowering the prices of U.S. goods relative to those made in China. In this post, we examine the thinking behind ...
Discussion Paper
The Vanishing U.S.-E.U. Employment Gap
The employment-to-population ratio—the share of adults that are employed—has historically been much higher in the United States than in Europe. However, the gap narrowed dramatically in the last decade and had almost disappeared by the end of 2009. In this post, we show that the narrowing employment gap is due to three factors: declining U.S. employment rates across almost all age-gender groups; more women working in Europe, particularly prime-age and older workers; and rising employment for older European men. We link most of these shifts to the influence of underlying trends (many ...
Discussion Paper
Central Bank Imbalances in the Euro Area
The euro area sovereign debt crisis sparked an outflow of bank deposits from countries in the periphery to commercial banks in Germany and other core countries. The outflow highlighted a key aspect of the payments system linking national central banks in euro area countries. In particular, net outflows from private commercial banks in a given country are matched by credits to that county’s central bank, with those credits extended by central banks elsewhere in the euro area. In this post, we explain how the credits affected the adjustment pressures faced by countries in the euro area during ...