Changing International Financial Architecture: Growing Chinese Influence?

It is often said that the 21st century will be the Asian century. Based on population and gross domestic product projections, it certainly looks as if this will be so. Will the existing international financial institutions give more voices, votes, and top positions to Asia? Or will Asia create its own institutions that would rival the old architecture? This present paper argues, first, that China, and possibly India, will be in a position to be so influential that the international financial architecture may have to go through significant changes. Second, the three large crises in the last 20 years have made Asian countries more confident that they can manage capital flows by accumulating large foreign reserves and by adopting sound macrofinancial policies. After 2009, China started to push various initiatives that will amount to creating its own sphere of influence with new regional institutions in the future.     

Dynamics of quote and deal prices in the foreign exchange market

We empirically investigate price fluctuations of yen-dollar exchange rate using the high-frequency data recorded in the electronic broking system for seven-year period. The distribution of quote price changes has symmetric fat-tails approximated by a power law; however, that of deal price is asymmetrical. The autocorrelation function and diffusion of price changes indicate that quote price exhibits anti-correlation feature in short time scale, whereas deal price is essentially uncorrelated. The bid-ask spread shows power-law distribution and long range temporal correlations similar to that observed in absoute price changes.      

Asian Currency Crisis and the International Monetary Fund, 10 Years Later: Overview*

This paper is an overview of the Asian currency crisis in Thailand, Indonesia, and South Korea in 1997–1998, with an emphasis on the role of the International Monetary Fund (IMF). It provides a detailed account of the development of the crisis and analyses and evaluates the content of IMF advice and its consequences. The size of the IMF package for each of these three countries is judged to have been too small. This paper also has a comparative perspective; the Mexican crisis is reviewed as a precursor to the Asian crisis to see what the IMF learned, and how it prepared, for future crises. The causes of the crises and IMF conditionality for the post‐Asian crisis countries, Russia, Brazil, Turkey, and Argentina, are also compared to the Asian crisis countries. By agreeing to maintain a fixed exchange rate, for example, the IMF is judged to have been “softer” in its approach to the post‐Asian crisis countries.     

Is the Sky the Limit? Can Japanese Government Bonds Continue to Defy Gravity?

This paper presents a simulation model based on the growth rate, the inflation rate, and the consumption tax rate in the future. Future tax revenues and fiscal expenditures are projected using regression models estimated from past data. The fiscal situation is called unsustainable if the outstanding amount of Japanese government bonds (JGBs) becomes higher than the level of private sector financial assets. We focus on the general account of the central government, which is the source of JGB issues. We find that the higher the economic growth, the more likely it is that the fiscal situation is sustainable. When a larger portion of interest income is reinvested in JGBs, the chance is higher that the fiscal situation is sustainable. Most importantly, raising the consumption tax to 20% guarantees fiscal sustainability in most cases. Our analysis shows that without a consumption tax hike beyond the 10% rate, a fiscal crisis will be almost a certainty, even with a real economic growth rate of 2% despite a shrinking labor force. A reasonably quick hike of the consumption tax, namely a hike by 1% a year, up to 20%, combined with high or moderate economic growth rates, seems to keep the economy out of a fiscal crisis, where a moderate growth rate is defined to be generated by a productivity increase per working‐age population of 1.9%, which was the average during the Koizumi years.     

Productivity Growth in the Chinese Economy by Industry and the Role of Foreign Capital

I. IntroductionIt is well known that China’s reform and open-up policy initiated in 1978 had an extremelylarge impact on the Chinese economy. This policy represented an about-face against thetraditional self-reconstruction strategy that China had maintained since the founding ofthe people’s Republic in 1949. Although China’s economy temporarily fell into confusionfor a few years after the Tian-an-men incident in 1989, China continued to record high GDPgrowth. Moreover, after Deng Xiao…