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Economic improvements generally accrue to countries that go through regime change, but not always when the change leads to democratization, according to a new study on the relationship between democracy and growth. Working Paper 14-1 by Caroline Freund and Mélise Jaud.

The failure in mid-January by the US Congress to approve IMF reform legislation halted progress on Fund governance and damaged the US reputation around the world. The administration and the Congress must make every effort to pass this legislation before the early-April meeting of the International Monetary and Financial Committee (IMFC). Policy Brief 14-9 by Edwin M. Truman.

Peterson Perspectives Interviews
audio The IMF's Existential Crisis
with Edwin M. Truman
Related Event: The IMF: What Is It Good For?
audio China's Moderate Growth Slowdown
with Nicholas R. Lardy
audio French Cabinet Shakeup: Old Wine in New Bottles?
with Nicolas Véron

Flirting with Default: Issues Raised by Debt Confrontations in the United States

Adam S. Posen, president of PIIE, and other Institute experts analyze the heavy costs [pdf] of the fights in Washington over extending the debt ceiling.

Cathleen Cimino, Gary Clyde Hufbauer, and Jeffrey J. Schott analyze the impact of the widely used local content requirements (LCRs) and recommend a new World Trade Organization code to constrain their use, enhance transparency, expedite dispute resolution, and impose penalties for noncompliance. Policy Brief 14-6.

Caroline Freund finds that the emphasis on small and medium enterprises in the National Export Initiative, while attractive, was misguided and recommends a specific set of policies that the administration should concentrate on to boost exports. Policy Brief 14-7

With the economic recovery incomplete and inflation falling well short of target, the US Federal Reserve needs to be prepared to stop tapering as announced in December 2013 or even reverse course should the forecasted acceleration in real activity show signs of faltering, warns David J. Stockton. See also Five Challenges for Janet Yellen at the Federal Reserve by David J. Stockton.

The crucial international role the Fed played during US Federal Reserve Chairman Ben Bernanke's tenure—a time when domestic economic weakness translated into relatively ineffective American global leadership—should not be overlooked, writes Arvind Subramanian.

Joseph E. Gagnon and Brian Sack propose a new operating framework that will allow the Federal Reserve to conduct monetary policy while maintaining a substantially elevated balance sheet and abundant liquidity in the financial system. Policy Brief 14-4.

The European Debt Crisis

Inflation in the euro area is too low, and the European Central Bank (ECB) is at risk of missing its price stability mandate. Angel Ubide offers strategies to restore price stability and generate an environment conducive to sustainable growth. Policy Brief 14-5.

RealTime Economics Issues Posts

No Change in the ECB Outlook despite Ambiguous Signals to the Contrary by Jacob Funk Kirkegaard
Europe's Newest Steps Forward to Deal with Failing Banks by Jacob Funk Kirkegaard
The European Central Bank Remains on Hold by Jacob Funk Kirkegaard
The German Establishment—Principled but Pragmatic by Jacob Funk Kirkegaard

Peterson Perspectives Interviews

audio A Small Step Toward European Banking Union Regulation
with Nicolas Véron
audio Can Hollande Take On France's "National Champions"?
with Nicolas Véron
audio PIIE Debate: How Should the ECB Act to Counter Deflation?
with Jacob Funk Kirkegaard and Angel Ubide

Project on Inequality and Democratic Capitalism

Using detailed data, Jacob Funk Kirkegaard shows that Germany's recent labor market success has resulted from the country’s comprehensive structural labor reforms in the early 2000s and suggests that other euro area economies and the United States should learn from it. Policy Brief 14-1.

Using data on eight advanced economies between 2007 and 2010, Tomas Hellebrandt shows how the Great Recession affected income inequality in different countries and how families and the state tried to mitigate its impact—primarily through redistributing income within households and through benefit and tax policies. Policy Brief 14-3.

See also:

How Lowering Youth Unemployment Leads to Consumption Growth

Major ERANDA Foundation Gift to PIIE Supports New Research on What Difference Business and Labor Practices Can Make to Rising Inequality

Dani Rodrik and Arvind Subramanian argue that emerging markets are not hapless victims of the US Federal Reserve (and other central banks) but merely reaping what they have chosen to sow. Subramanian testifies that the US Federal Reserve's monetary easing policies [pdf], including the bond purchasing program known as quantitative easing, have generally had a positive impact on emerging markets and the global economy.

Simon Johnson testifies that Volcker Rule will likely have a positive impact on job creators and on job creation, and that there are no signs of the dire consequences that large bank holding companies fear. Johnson also testifies that the GAO study on government support for bank holding companies [pdf] has several prominent limitations; perhaps most worrying, the GAO seems to weight all "expert" opinion equally, irrespective of whether the work in question was undertaken by people who work for big banks.

C. Fred Bergsten recommends addressing currency manipulation through trade agreements, starting with adding a currency chapter in the Trans-Pacific Partnership. Policy Brief 14-2.

Jacob Funk Kirkegaard predicts that Europe's relative tranquility in the past year will continue into 2014, but says the risks of complacency have not disappeared.

Arvind Subramanian and Devesh Kapur explain India's obsession with spending and subsidies, to the neglect of taxation and the potential detrimental consequences for democracy and accountability.

India's trade is paradoxically closed in terms of policy but open in terms of outcomes, writes Arvind Subramanian.

The latest estimates of fundamental equilibrium exchange rates (FEERs) shows that exchange rate misalignments have tended to narrow in the past six months despite earlier concerns that prospective tapering in US quantitative easing would wreak havoc in international capital and currency markets. Policy Brief 13-29 by William R. Cline.

New Book: Responding to Financial Crisis: Lessons from Asia Then, the United States and Europe Now
Changyong Rhee and Adam S. Posen, editors
See also: Release Event | News Release

RECENT EVENTS

 

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PIIE and Moody's Investor Service (MIS) held their semiannual joint Sovereign Economic Panel to discuss short-term stresses versus medium-term prospects for key emerging markets.

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Global Economic Prospects: Spring 2014

David Stockton, Nicholas Lardy, Ángel Ubide, and Nicolas Véron forecast a generally favorable outlook for the economies of the United States, Western Europe, Japan, and China but also warn there are some risks not widely recognized.

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Is the Euro Area Crisis Really Over?

Martin Wolf, chief economics commentator of the Financial Times, discusses the euro area crisis with Simeon Djankov, former deputy prime minister and minister of finance of Bulgaria.

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