Was the Currency Crisis in Argentina Self-Fulfilling?

The aim of this paper is to investigate whether the 2002 crisis in Argentina was, at least to some extent, self-fulfilling. The theoretical basis we refer to is the so-called “second-generation” models. We use a Markov-switching model that allows us to empirically estimate the role played by fundamentals and/or shifts in devaluation expectations. Our results suggest that shifts in expectations have induced the crisis. However, because deteriorating fundamentals are also significant, we conclude that the collapse of the peg has been partly driven by adverse fundamentals and that abrupt shifts in devaluation expectations have forced a premature exit. JEL no. C22, D84, F31     

Why Does the US Face Greater Disadvantages in the Trade War with China?

The rhetoric used by President Trump regarding the trade war against China is rife with misinterpretation. The actual American trade deficit with China is much lower if evaluated in the correct terms of value‐added. The deficit is mainly a result of insufficient domestic US savings. In addition, as the US dollar is an international currency which is being increasingly held as a result of increases in world population, income, prices and transaction intensity, Americans can benefit from having trade deficits of hundreds of billions of US dollars each year. My analysis, as well as a model of the Bank of England, reveals that the trade war is not only mutually harmful but also actually hurts America more than China. The Thucydides Trap is likely avoidable in the current nuclear era of assured mutual destruction and because China, facing many structural impediments, is still far behind America in technology and military power.     

Whither China? Reform and economic integration among Chinese regions

This paper investigates the changing nature of economic integration in China. Specifically, we consider business-cycle synchronization (correlation of demand and supply shocks) among Chinese provinces during the period 1955–2011. We find that the symmetry of supply shocks has declined after the liberalization initiated in 1978. In contrast, the correlation of demand shocks has increased during the same period. We then seek to explain these correlations by relating them to factors that proxy for interprovincial trade and vulnerability of regions to idiosyncratic shocks. Interprovincial trade and similarity in factor endowments tend to make shocks more symmetric. Surprisingly, foreign trade and inward FDI have little effect on the symmetry of shocks.     

Are Central Bankers Currency Manipulators?

The term “currency manipulator” has been used by the United States to describe the monetary practices of nations such as China and Japan and by Germany to describe U.S. monetary policy. This charge transcends monetary regimes and includes both traditional monetary policy and that in the service of industrial or developmental strategies that center on export led growth. While the latter clearly has a negative effect on employment and economic growth in the rest of the world, the increased international mobility of capital, combined with the wide-spread use of flexible exchange rates, has led to the same external effects from the normal conduct of monetary policy. Acknowledging and dealing with these negative external effects will lead to improved and less tension-filled international economic relations than calling nations “currency manipulators.”.     

Asian Currency Baskets: An Answer in Search of a Question?

This paper considers whether an intra regional currency basket and the associated divergence indicators could play a useful role in official exchange rate surveillance. Recently, proponents of an Asian currency basket have referred to the role the European Currency Unit played in constructing exchange rate divergence indicators as evidence of the usefulness of intra regional currency baskets for exchange rate monitoring. The paper shows that such indicators have a number of features that can lead to them obscuring underlying changes in exchange rates and that the signals they emit will often be difficult to interpret. In addition, the use of regional currency baskets for surveillance can lead to potentially serious N − 1 problems in circumstances when there is not agreement about which regional currencies will be the anchor currencies.

Banking and the Macroeconomy in China: A Banking Crisis Deferred?

The downturn in the world economy following the global banking crisis has left the Chinese economy relatively unscathed. This paper develops a model of the Chinese economy using a DSGE framework with a banking sector to shed light on this episode. It differs from other applications in the use of indirect inference procedure to test the fitted model. The model finds that the main shocks hitting China in the crisis were international and that domestic banking shocks were unimportant. However, directed bank lending and direct government spending was used to supplement monetary policy to aggressively offset shocks to demand. The model finds that government expenditure feedback reduces the frequency of a business cycle crisis but that any feedback effect on investment creates excess capacity and instability in output.     

China in the middle-income trap?

Over the last decade, a growing body of literature dealing with the phenomenon of the “middle-income trap” (MIT) has emerged. The term MIT usually refers to countries that have experienced rapid growth and thus reached the status of a middle-income country (MIC) in a very short period of time, but have not been able to further catch up with the group of high-income economies. In particular, since the beginning growth slowdown of the Chinese economy in 2011, there has been rising concern that China is, or will also be, confronted with such a trap. This paper analyzes the Chinese MIT situation taking into account both the (absolute and relative) empirical MIT definitions and MIT triggering factors identified in the literature. We not only survey the recent literature, but also make our own MIT forecasts and analyze under which conditions China could be caught in an MIT.     

What Factors Keep Cash Alive in the European Union?

This paper aims to analyze the determinants of cash usage in a selection of European Union (EU) countries over the 2003–2016 period, based on a set of technological, socioeconomic, and socio-cultural indicators and cost components. Our results reveal the existence of both common and region-specific determinants for the EU advanced and Central and Eastern European (CEE) countries. In both groups cash usage is determined by payment system characteristics. Additionally, in the EU advanced countries cash usage can also be explained by the level of economic development and income inequalities and proliferation of Internet. In contrast, cash usage in CEE countries is negatively associated with consumer confidence and is inversely related to the technological progress, expressed in terms of mobile users.

     

A SCP Analysis of FDI in China

FDI in China has experienced cooperation and joint venture being dominant. Nowadays, there is the trend towards wholly foreign-owned and proprietary companies. Based on theories of industrial economics, this article not only makes an analysis of projects involving FDI, amount of FDI in use and its percentage in GDP, industrial concentration of FDI in use and FDI projects, but also probes into the contribution of FDI to employment and revenues. Analysis shows that foreign enterprises arc playing an ever increasingly important role in the export of high-tech products. However, sacrificing the market did not realize the expectation of gaining technology needed, super national treatment not only consumed huge resources which is not reclaimable, worsened eco-enviromnent but also decreased the competitiveness of domestic enterprises. To some extent, domestic enterprises blindly imitate, and lost gradually self-development and innovation. Thus, greatly improving original and integrative innovation capability and re-innovation capability based on digestion is the only way to defend our economic safety.     

Why did the communist party reform in China,but not in the Soviet Union? The political economy of agricultural transition

The dramatic transition from Communism to market economies across Asia and Europe started in the Chinese countryside in the 1970s. Since then more than a billion of people, many of them very poor, have been affected by radical reforms in agriculture. However, there are enormous differences in the reform strategies that countries have chosen. This paper presents a set of arguments to explain why countries have chosen different reform policies.     

Is an Optimum Currency Area Feasible in East and South East Asia?

Abstract

In the backdrop of the recent economic crisis in the European Union, this study attempts to assess the degree of regional integration and the suitability of a monetary union in the East and South-East Asian (ESEA) region. For this purpose, we analyse the issue in a variety of ways. First, a long-run linkage of real output of the countries is tested using the cointegration analysis. Results suggest that real output of most of the countries in the region is cointegrated and move together in the long-run. To analyse the issue in detail, we focus on the impact of three different shocks, namely global, regional and country-specific, on real output of the countries. Results of impulse response and variance decomposition analysis reveal that regional shocks do not dominate in the sample countries, which is an indication of unfavourable condition to form an optimal currency area (OCA) in the region. These results are further confirmed by the outcome of computation of the modified Bayoumi and Eichengreen's Indices. Finally, we employ the concept of Generalized Purchasing Power Parity (G-PPP), which however reveals that the bilateral real exchange rate of ESEA countries move together in the long-run and share a common stochastic trend, which in turn provides some empirical support for an OCA in the region.     

Optimal Currency Area: A twentieth Century Idea for the twenty-first Century?

We take stock of the history of the European Monetary Union and pegged exchange-rate regimes in recent decades. The post-Bretton Woods greater financial integration and under-regulated financial intermediation have increased the cost of sustaining a currency area and other forms of fixed exchange-rate regimes. Financial crises illustrated that fast-moving asymmetric financial shocks interacting with real distortions pose a grave threat to the stability of currency areas and fixed exchange-rate regimes. Members of a currency union with closer financial links may accumulate asymmetric balance-sheet exposure over time, becoming more susceptible to sudden-stop crises. In a phase of deepening financial ties, countries may end up with more correlated business cycles. Down the road, debtor countries that rely on financial inflows to fund structural imbalances may be exposed to devastating sudden-stop crises, subsequently reducing the correlation of business cycles between currency area’s members, possibly ceasing the gains from membership in a currency union. A currency union of developing countries anchored to a leading global currency stabilizes inflation at a cost of inhibiting the use of monetary policy to deal with real and financial shocks. Currency unions with low financial depth and low financial integration of its members may be more stable at a cost of inhibiting the growth of sectors depending on bank funding.     

Is There Excess Liquidity in China?

In this paper, we developed the recursive unit root tests proposed by Phillips et al. (2013) and used them to identify the beginning and the end of potential excess liquidity in the Chinese monetary market during the period from 1992 to 2013. The result indicates that excess liquidity existed from the third quarter of 2002 to 2013. The analysis shows that since 2003, the inflationary pressure of excess liquidity has remained high. We provide evidence supporting the money illusion hypothesis in China. The recursive unit root test is suited to practical implementation with time series and delivers a consistent date‐stamping strategy for determining the origination and termination of multiple bubbles. Simulations show that the test significantly improves discriminatory power and leads to distinct power gains.     

Are intergovernmental transfers in China equalizing?

Since 1994, China's central government has implemented a sequence of fiscal recentralization measures to increase its equalization capacity and reduce regional income disparities. However, the effect of intergovernmental transfers on equalization has been called into question by anecdotal evidence that seems to suggest that transfers from the center are not rule-based and are subject to heavy rent-seeking. Unlike past studies, which have focused on the equalization effects of total fiscal transfers from the center, this paper includes an examination of the equalization effects of different types of transfers because some transfers, which are inherently anti-equalizing, may mask the equalization effects of other types of transfers when they are lumped together to find the “average” effect. Using inequality measures, a decomposition of fiscal disparities, and dynamic panel data models, we find that China's intergovernmental transfer system that was established in 1994 does have some equalizing elements. To a large extent, these elements exist due to the mechanism designed to shrink the tax rebates that bear the legacy of the pre-1994 system; to a small extent, these elements exist due to the rule-based general-purpose transfer whose share in total transfers remains small but has increased since 2002. However, the equalization effects of the largest component of transfers, specific-purpose transfers, are anti-equalizing. They are typically not rule-based and thus subject to political influence. As a result, total transfers also exhibit significant anti-equalization effects.     

Rebalancing Growth in China：A Three-Handed Approach

I. Introduction On 21 July 2005 China began the process of rebalancing its economy. The new exchange rate rule will, over time, reduce the incentive to invest in the export sector. This is the right move for China because there are increasing signs that the economy has proceeded too far?2006 The Authors Journal compilation ?2006 Institute of World Economics and Politics, Chinese Academy of Social Sciences into manufacturing for export markets, to the point that the country’s capital sto…     

Is the Middle East an Optimum Currency Area? A Comparison of Costs and Benefits

This paper examines the macroeconomic costs and benefits of adopting a common currency for 13 Middle Eastern countries. Economic theory suggests that the main benefit is enhanced price stability, while the main cost is higher business-cycle volatility if the member country’s output is not sufficiently correlated with the area’s, as a whole. Using data from 1980–2005, the paper finds that the estimated cost and benefit measures exhibit substantial variability across the countries and are sometimes positively correlated. Moreover, focusing on the results for the last decade, it seems that many Middle Eastern countries (such as Bahrain, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Syria and United Arab Emirates) have achieved remarkable convergence both in business-cycle synchronization and inflation outcomes.

What Drove Housing Wealth Inequality in China?

Although China is experiencing a deterioration in wealth distribution where housing is playing a dominant role, this issue has received scant research attention despite its importance. Combining four rounds of the China Household Finance Survey (CHFS) data, this paper measures and discusses wealth inequality in China, with a special emphasis on the contribution of housing. Our analysis reveals that housing is the largest contributor to wealth inequality, responsible for around 70 percent of total wealth inequality, and its contribution has been increasing over time. Our research efforts have focused on the housing wealth disparity, exploring its composition from alternative perspectives. The results show that housing wealth inequality has also been rising over time and an absolute majority of housing wealth inequality is due to within‐group gaps. Finally, we employ Wan's (2004) regression‐based decomposition methodology to quantify the contributions of different determinants to housing wealth disparity in China, and to demonstrate serious biases in the conventional approach that is often used to analyze housing wealth inequality.     

A Summary of Mineral Resource Economics Study in China

The history of theory development indicates that the study on the price theory of the mineral resources has moved from the mineral resources paid use to the property of value and pricing mineral resources. The core of the study of mineral resources management system is in fact the analysis on the system changes of the mineral resources paid use and resources marketization. We have formed a mainstream view of the system change that is based on the value, capitalization and marketization. Besides, we must use policies made by the government to eliminate market failures, improve and perfect mineral resources accounting system, make mineral resources planning, and control investment direction and finally bring about the sustainable development of mineral resources.     

Will Entrepreneurship Promote Productivity Growth in China?

Based on data obtained from the Survey of Industrial Firms in China, the Chinese General Social Survey and prefecture‐level city data, this paper explores whether entrepreneurship will promote productivity growth in China. The research also examines whether entrepreneurship acts as a transmission mechanism affecting productivity through market competition, knowledge spillover and factor structure. Our empirical results reveal a relatively significant U‐shaped relationship between entrepreneurship and productivity and confirm the existence of a transmission mechanism of entrepreneurship. Among the three effects, the market competition effect is the most significant, followed by knowledge spillover and factor structure effects. An entrepreneurial heterogeneity test reveals that there is no significant difference between the effect of necessity entrepreneurship and overall entrepreneurship on productivity. However, a positive correlation is found between opportunistic entrepreneurship and productivity. Therefore, entrepreneurship plays a unique role in promoting economic growth in China.