Today we are pleased to present a guest contribution written by Douglas L. Campbell (New Economic School, Moscow) and Lester Lusher (UC Davis).
Category Archives: exchange rates
Guest Contribution: “Five Key Factors for 2017”
Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers.
A Big MacParity Guide to Undervalued Currencies
China is not high on the list for “day one sanctions” if one were to look at this fast-food data.
Figure 1: Log relative dollar price of Big Mac against dollar price of US Big Mac (July 2016) versus log relative per capita income in PPP terms (2016 estimates); regression fit from quadratic specification (black dots), and 90% prediction interval (gray dots). Source: Economist, World Bank World Development Indicators, and author’s calculations. Data [XLSX]
Using the methodology outlined in this post, it’s clear that by the price criterion, Russia’s currency is much more undervalued (at 50% in log terms) than China’s.
US Financial Conditions and Emerging Market Stress: The Outlook
From NYT:
…around the globe, the surge in the dollar is provoking financial jitters.
Emerging market countries and corporations that have been binging on cheap dollar debt for more than a decade now face a spike in servicing costs and elevated debt burdens.
Raise the Yuan! Implications for the Treasury Spread
Some back-of-the-envelope calculations: If we get what President Elect Trump says he wants — no depreciation of the yuan — what happens to the Treasury 10 year-3 month spread?
Manufacturing Employment and Three Episodes of Dollar Appreciation
Mark Thoma comments on the impact of the likely dollar appreciation:
A stronger dollar will make imports cheaper for American consumers…The U.S. economy is now strengthening and approaching full employment, but it’s not quite there yet. So I expect the stronger dollar to have some employment effects, but I don’t expect them to be substantial…
The Yuan: Nominal Bilateral vs. Basket vs. Real Trade Weighted
The yuan is sliding against the dollar. What about against other currencies?
Day One Approaches! Currency Manipulation, China and the Big Mac Index
Among the many promises made by President Elect Trump, one was to declare China a currency manipulator on his first day in office. Besides the logistical difficulties of doing so without a Treasury Secretary in place, there are the minor difficulties of what the data indicate (I know, I know, facts seem of little import these days, but what the heck). In addition to the legally defined concerns Brad Setser has raised, I think it is useful to assess China’s currency using a commonly used measure of currency misalignment.
Mr. Trump and the markets
I was astounded not only by the outcome of the U.S. presidential election but also by the response of financial markets.
Continue reading
“Gaining Currency: The Rise of the Renminbi”
That’s the title of a newly released book written by Eswar Prasad, an authority on the Chinese economy (and international finance).