Category Archives: exchange rates

RMB Misalignment in a PPP Framework: The Impact of Data Revisions

The World Bank’s new World Development Indicators were released a bit over a month ago. The impact on the estimates of RMB misalignment are substantial. (This is an elaboration on a RGEMonitor post by Yin-Wong Cheung from a week and half ago, and is based on preliminary results from a presentation made yesterday at a Deutsche Bundesbank and Center for Financial Studies/Goethe University Frankfurt Workshop on Panel Methods and Open Economies”.)

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Let’s Think Long and Hard about Extending Those Bush Tax Cuts

There was a time one could plausibly argue that importing lots of goods and services, and borrowing a lot from abroad (financing the budget deficits that we’ve incurred since 2001) was a great idea. But at the time, about two and a half years ago, I made the following warning in a Council of Foreign Relations report [pdf]:

The United States faces a wide variety of possible outcomes, with the most dire having a significant likelihood. One real possibility entails the satiation of global investors’ appetite for U.S. Treasury securities, combined with an endless vista of government budget deficits. After several years of large losses on dollar assets due to depreciation, they then demand a substantial premium for holding dollar-denominated assets; either the dollar must weaken so as to make Treasury securities cheap, or yields must rise relative to those on other assets.

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Recoupling, Monetary Policy Divergence, and the Dollar

At the risk of losing my audience by skipping over the the record housing price decline, and an outsized drop in the consumer confidence index, I’m going to focus on what seems like old news (but is being reflected in current news on the dollar), namely the OECD reduction in growth forecasts for the G-7 economies. The euro area economy is slated to do better than the US economy in 2008H1, but that’s not saying much.

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