Showing results 1 to 9 of approximately 9.(refine search)
Chinese Foreign Exchange Reserves, Policy Choices and the U.S. Economy
China is both a major trading partner of the United States and the largest official holder of U.S. assets in the world. The value of Chinese foreign exchange reserves peaked at just over $4 trillion in June 2014, but has since declined to $3.19 trillion as of August 2016. This very large decline is in foreign exchange reserves is unprecedented and some analysts have speculated that continued sales of these (mostly U.S.) assets might significantly impact the U.S. and global economies. This article explains the reasons for this large decline in official assets, what China?s policy choices are, ...
The Domestic and International Effects of Interstate U.S. Banking
This paper studies the domestic and international effects of national bank market integration in a two-country, dynamic, stochastic, general equilibrium model with endogenous producer entry. Integration of banking across localities reduces the degree of local monopoly power of financial intermediaries. The economy that implements this form of deregulation experiences increased producer entry, real exchange rate appreciation, and a current account deficit. The foreign economy experiences a long-run increase in GDP and consumption. Less monopoly power in financial intermediation results in less ...
Japan’s Missing Wall of Money
The Bank of Japan announced an open-ended asset purchase program in January 2013 and an unexpectedly ramped-up version of the program was implemented in early April. Market commentary at that time suggested that flooding the economy with liquidity would lead to a “wall of money” flowing out of Japan in search of higher yields, affecting asset prices worldwide. So far, however, Japan’s wall of money remains missing in action, with no pickup in Japanese foreign investment since the April policy shift. Why is this? Here we explain that while economic theory does not offer clear guidance on ...
The global saving glut and the fall in U.S. real interest rates: A 15-year retrospective
The authors revisit Ben Bernanke’s global saving glut (GSG) hypothesis from 2005—which links low long-term real interest rates in the United States to excess saving in a number of non-Western countries, including, but not limited to, China. Using an analytical framework and empirical data, they find that the ability of the GSG hypothesis to explain the fall in long-term real rates between 2002 and 2006 is likely much greater than its ability to account for the further fall in these rates from the Great Recession onward.
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 ...
Cyclically Adjusted Current Account Balances
The Great Financial Crisis coincided with a sizable reduction in global external imbalances, defined as the absolute value of the sum of individual country current account surpluses and deficits relative to global GDP. Although current account balances should not respond to a downturn that is uniform across countries, one that hits countries with current account deficits harder than those with surpluses might result in a decline in the global balance. This paper quantifies the cyclical portion of the current account balance for 35 countries using estimates of the severity of the cycle in each ...
Foreign Borrowing in the Euro Area Periphery: The End Is Near
Current account deficits in euro area periphery countries have now largely disappeared. This represents a substantial adjustment. Only two years ago, deficits stood at nearly 10 percent of GDP in Greece and Portugal and 5 percent in Spain and Italy (see chart below). This sharp narrowing means that spending has been brought in line with income, largely righting an imbalance that had left these countries dependent on heavy foreign borrowing. However, adjustment has come at a sizable cost to growth, with lower domestic spending only partly offset by higher export sales. Downward pressure on ...
Is the United States Relying on Foreign Investors to Fund Its Larger Budget Deficit?
The federal tax cut and the increase in federal spending at the beginning of 2018 substantially increased the government deficit, requiring a jump in the amount of Treasury securities needed to fund the gap. One question is whether the government will have to rely on foreign investors to buy these securities. Data for the first half of 2018 are available and, so far, the country has not had to increase the pace of borrowing from abroad. The current account balance, which measures how much the United States borrows from the rest of the world, has been essentially unchanged. Instead, the tax ...
Falling Oil Prices and Global Saving
The rise in oil prices from near $30 per barrel in 2000 to around $110 per barrel in mid-2014 was a dramatic reallocation of global income to oil producers. So what did oil producers do with this bounty? Trade data show that they spent about half of the increase in total export revenues on imports and the other half to buy foreign assets. The drop in oil prices will unwind this process. Oil-importing countries will gain from lower oil bills, but they will also see a decline in their exports to oil-producing countries and in purchases of their assets by investors in these countries. Indeed, ...