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Working Paper
Flying geese or sitting ducks: China’s impact on the trading fortunes of other Asian economies
This paper updates our earlier work (Ahearne, Fernald, Loungani and Schindler, 2003) on whether China, with its huge pool of labor and an allegedly undervalued exchange rate, is hurting the export performance of other emerging market economies in Asia. We continue to find that while exchange rates matter for export performance, the income growth of trading partners matters far more. This suggests the potential for exports of all Asian economies to grow in harmony as long as global growth is strong. We also examine changes in export shares of Asian economies to the U.S. market and find ...
Working Paper
Ireland's great depression
We argue that Ireland experienced a great depression in the 1980s comparable in severity to the better known and more studied depression episodes of the interwar period. Using the business cycle accounting framework of Chari, Kehoe and McGrattan (2005), we examine the factors that lead to the depression and the subsequent recovery in the 1990s. We calculate efficiency, labor, investment and government wedges, and evaluate the contribution of each to the downturn and subsequent recovery. We find that the efficiency wedge on its own can account for a significant portion of the downturn, but ...
Working Paper
China and emerging Asia: comrades or competitors?
We explore whether increases in China?s exports reduce exports of other emerging Asian economies. We find that correlations between Chinese export growth and that of other emerging Asian economies are actually positive (though often not significantly so), even after controlling for the effects of income growth of trading partners and real effective exchange rates. We also present results from a VAR estimation of aggregate trade equations on the relative importance of foreign income and exchange rates in the determination of Asian export growth. An important finding is that, while exchange ...
Journal Article
Countering contagion: Does China's experience offer a blueprint?
China did not succumb to the Asian crisis of 1997-99, despite two apparent sources of vulnerability: a weak financial system and increased export competition from the Asian crisis economies. This article argues that both sources of vulnerability were more apparent than real. China's experience (especially its use of capital controls) does not offer a blueprint for other countries, because other countries would not want to replicate China's inefficient, non-market-oriented financial system.
Working Paper
China and emerging Asia: comrades or competitors?
Do increases in China's exports reduce exports of other emerging Asian economies? We find that correlations between Chinese export growth and that of other emerging Asian economies are actually positive (though usually not significant), even after controlling for trading-partner income growth and real effective exchange rates. We also present results from a VAR estimation of aggregate trade equations on the relative importance of foreign income and exchange rates in determining Asian export growth. Although exchange rates do matter for export performance, the income growth of trading partners ...
Working Paper
Monetary policy and house prices: a cross-country study
This paper examines periods of pronounced rises and falls of real house prices since 1970 in eighteen major industrial countries, with particular focus on the lessons for monetary policy. We find that real house prices are pro-cyclical?co-moving with real GDP, consumption, investment, CPI inflation, budget and current account balances, and output gaps. House price booms are typically preceded by a period of easing monetary policy, but then diminishing slack and rising inflation lead monetary authorities to begin tightening policy before house prices peak. In a careful reading of official ...
Working Paper
Preventing deflation: lessons from Japan's experience in the 1990s
This paper examines Japan's experience in the first half of the 1990s to shed some light on several issues that arise as inflation declines toward zero. Is it possible to recognize when an economy is moving into a phase of sustained deflation? How quickly should monetary policy respond to sharp declines in inflation? Are there factors that inhibit the monetary transmission mechanism as interest rates approach zero? What is the role for fiscal policy in warding off a deflationary episode? We conclude that Japan's sustained deflationary slump was very much unanticipated by Japanese policymakers ...
Working Paper
Information costs and home bias: an analysis of U.S. holdings of foreign equities
We aim to provide insight into the observed equity home bias phenomenon by analyzing the determinants of U.S. holdings of equities across a wide range of countries. In particular, we explore the role of information costs in determining the country distribution of U.S. investors' equity holdings using a comprehensive new data set on U.S. ownership of foreign stocks. We find that U.S. holdings of a country's equities are positively related to the share of that country's stock market that is listed on U.S. exchanges, even after controlling for capital controls, trade links, transaction costs, ...