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96 posts on "International Economics"

June 22, 2020

Japan’s Experience with Yield Curve Control



Japan’s Experience with Yield Curve Control

In September 2016, the Bank of Japan (BoJ) changed its policy framework to target the yield on ten-year government bonds at “around zero percent,” close to the prevailing rate at the time. The new framework was announced as a modification of the Bank's earlier policy of rapid monetary base expansion via large-scale asset purchases—a policy that market participants increasingly regarded as unsustainable. While the BoJ announced that the rapid pace of government bond purchases would not change, it turned out that the yield target approach allowed for a dramatic scaling back in purchases. In Japan’s case, the commitment to purchase whatever was needed to keep the ten-year rate near zero has meant that very little in the way of asset purchases have been required.

Continue reading "Japan’s Experience with Yield Curve Control" »

Posted by Blog Author at 7:00 AM in International Economics, Monetary Policy | Permalink | Comments (2)

May 28, 2020

The Investment Cost of the U.S.-China Trade War



The Investment Cost of the U.S.-China Trade War

Starting in early 2018, the U.S. government imposed tariffs on over $300 billion of U.S. imports from China, increasing the average tariff rate from 2.7 percent to 17.5 percent. Much of the escalation in tariffs occurred in the second and third quarters of 2019. In response, the Chinese government retaliated, increasing the average tariff applied on U.S. exports from 5.7 percent to 20.4 percent. Our new study finds that the trade war reduced U.S. investment growth by 0.3 percentage points by the end of 2019, and is expected to shave another 1.6 percentage points off of investment growth by the end of 2020. In this post, we review our study of the trade war’s effect on U.S. investment.

Continue reading "The Investment Cost of the U.S.-China Trade War" »

Posted by Blog Author at 7:00 AM in International Economics, Macroecon | Permalink | Comments (0)

May 18, 2020

Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows



Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows


The COVID-19 outbreak has triggered unusually fast outflows of dollar funding from emerging market economies (EMEs). These outflows are known as “sudden stop” episodes, and they are typically followed by economic contractions. In this post, we assess the macroeconomic effects of the COVID-induced sudden stop of capital flows to EMEs, using our open-economy DSGE model. Unlike existing frameworks, such as the Federal Reserve Board’s SIGMA model, our model features both domestic and international financial constraints, making it well-suited to capture the effects of an outflow of dollar funding. The model predicts output losses in EMEs due in part to the adverse effect of local currency depreciation on private-sector balance sheets with dollar debts. The financial stresses in EMEs, in turn, spill back to the U.S. economy, through both trade and financial channels. The model-predicted output losses are persistent (consistent with previous sudden stop episodes), with financial effects being a significant drag on the recovery. We stress that we are only tracing out the effects of one particular channel (the stop of capital flows and its associated effect on funding costs) and not the totality of COVID-related effects.

Continue reading "Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows" »

May 14, 2020

Putting the Current Oil Price Collapse into Historical Perspective



LSE_Putting the Current Oil Price Collapse into Historical Perspective

Since the outbreak of the COVID-19 pandemic in late January, oil prices have fallen sharply. In this post, we compare recent price declines with those seen in previous oil price collapses, focusing on the drivers of such episodes. In order to do that, we break oil price shocks down into demand and supply components, applying the methodology behind the New York Fed’s weekly Oil Price Dynamics Report.

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May 12, 2020

How Did China’s COVID-19 Shutdown Affect U.S. Supply Chains?



How Did China’s COVID-19 Shutdown Affect U.S. Supply Chains?

The COVID-19 pandemic has had a significant impact on trade between the United States and China so far. As workers became sick or were quarantined, factories temporarily closed, disrupting international supply chains. At the same time, the trade relationship between the United States and China has been characterized by rising protectionism and heightened trade policy uncertainty over the last few years. Against this background, this post examines how the recent period of economic disruptions in China has affected U.S. imports and discusses how this episode might impact firms’ supply chains going forward.

Continue reading "How Did China’s COVID-19 Shutdown Affect U.S. Supply Chains?" »

Posted by Blog Author at 7:00 AM in International Economics, Pandemic | Permalink | Comments (1)

November 25, 2019

Who Pays the Tax on Imports from China?



Who Pays the Tax on Imports from China?

Tariffs are a form of taxation. Indeed, before the 1920s, tariffs (or customs duties) were typically the largest source of funding for the U.S. government. Of little interest for decades, tariffs are again becoming relevant, given the substantial increase in the rates charged on imports from China. U.S. businesses and consumers are shielded from the higher tariffs to the extent that Chinese firms lower the dollar prices they charge. U.S. import price data, however, indicate that prices on goods from China have so far not fallen. As a result, U.S. wholesalers, retailers, manufacturers, and consumers are left paying the tax.

Continue reading "Who Pays the Tax on Imports from China?" »

Posted by Blog Author at 7:00 AM in International Economics, Macroecon | Permalink | Comments (2)

November 06, 2019

Trade Policy Uncertainty May Affect the Organization of Firms’ Supply Chains



Trade Policy Uncertainty May Affect the Organization of Firms’ Supply Chains

Global trade policy uncertainty has increased significantly, largely because of a changing tariff regime between the United States and China. In this blog post, we argue that trade policy can have a significant effect on firms’ organization of supply chains. When the probability of a trade war rises, firms become less likely to form long-term, just-in-time relationships with foreign suppliers, which may lead to higher costs and welfare losses for consumers. Our research shows that even in the absence of actual tariff changes, an increased likelihood of a trade war can significantly distort U.S. imports.

Continue reading "Trade Policy Uncertainty May Affect the Organization of Firms’ Supply Chains" »

Posted by Blog Author at 7:00 AM in International Economics | Permalink | Comments (0)

August 14, 2019

Are U.S. Tariffs Turning Vietnam into an Export Powerhouse?



Are U.S. Tariffs Turning Vietnam into an Export Powerhouse?

The imposition of Section 301 tariffs on about half of China’s exports to the United States has coincided with a fall in imports from China and gains for other countries. The U.S.-China trade conflict also appears to be accelerating an ongoing shift in foreign direct investment (FDI) from China to other emerging markets, particularly in Asia. Within the region, Vietnam is often cited as a clear beneficiary of these trends, a rising economy that could displace China, to some extent, in global supply chains. In this note, we examine the data and conclude that Vietnam is indeed gaining market share, but is too small to replace China anytime soon.

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Posted by Blog Author at 7:00 AM in Exports, International Economics, Tariffs | Permalink | Comments (0)

August 07, 2019

Does a Data Quirk Inflate China’s Travel Services Deficit?



LSE_Does a Data Quirk Inflate China’s Travel Services Deficit?

Chinese residents are increasingly traveling to see the rest of the world, logging a total of 162 million foreign visits in 2018, up from 57 million in 2010. Increased travel spending by Chinese residents is acting to reduce the country's trade surplus because such spending is counted as a services import. However, there appears to be a quirk in the Chinese data that results in a significant understatement of the offsetting spending by visitors to China (a services export). According to other Chinese data, this understatement totaled $85 billion in 2018. If so, China's deficit in travel services is smaller than officially reported, and its trade surplus correspondingly larger.

Continue reading "Does a Data Quirk Inflate China’s Travel Services Deficit?" »

May 23, 2019

New China Tariffs Increase Costs to U.S. Households



New China Tariffs Increase Costs to U.S. Households

Tariffs on $200 billion of U.S. imports from China subject to earlier 10 percent levies increased to 25 percent beginning May 10, 2019, after a breakdown in trade negotiations. In this post, we consider the cost of these higher tariffs to the typical U.S. household.

Continue reading "New China Tariffs Increase Costs to U.S. Households" »

Posted by Blog Author at 7:00 AM in Household Finance, International Economics, Tariffs | Permalink | Comments (9)
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