Judy Shelton argues that “Free trade needs sound money”:
…[T]he time has come to develop a comprehensive approach to international monetary reform compatible with genuine free trade under free-market conditions. If markets are to function properly, money needs to convey accurate price signals; that won’t happen as long as governments can manipulate exchange rates.
Judy Shelton on currency manipulation.
From Bloomberg:
President Donald Trump’s administration is considering a new tactic to discourage China from undervaluing its currency that falls short of a direct confrontation…
That’s the title of a new European Central Bank working paper (coauthored with Yin-Wong Cheung (City U HK), Antonio Garcia Pascual (Barclay’s), and Yi Zhang (U. Wisc.)) just released.
But he asks it at 3AM, and asks General Flynn.
Those are estimated amounts of currency undervaluation, using the Big Mac index and the Penn Effect as of July 2016. Guess which currency is 3.7%, and which currency is 50.2%.
Elevated real interest rates and policy uncertainty explain a dollar about 4% higher than election day.
Today we are pleased to present a guest contribution written by Douglas L. Campbell (New Economic School, Moscow) and Lester Lusher (UC Davis).
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.
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.