Most of the discussion of the macro implications of an expanded Russian invasion of Ukraine presumes elevated oil prices (e.g., [1]). This makes sense, certainly for the short run. However, if oil prices rise sufficiently (keeping in mind for Brent have already risen from about $70/bbl to $90/bbl), they will kick the economy into a slowdown. Slowdowns tend to push down oil prices. I think in terms of graphs; this is how I see the short term, and (potentially) medium term.
Category Archives: international
Russia, FX Reserves and External Pressures in the Event of War
A recent NY Times article noted that Russia had taken measures to insulate itself from economic sanctions, including building up foreign exchange reserves. It’s true reserves are high, and in relative terms more so once one considers that nominal GDP [in USD terms] is smaller than in 2014.
Risk and Uncertainty before the Open
VIX jumped on Friday; the Economic Policy Uncertainty index rose on Saturday.
Guest Contribution: “Inflation, Fed policy and emerging markets”
Today, we are pleased to present a guest contribution by Steven Kamin (AEI), formerly Director of the Division of International Finance at the Federal Reserve Board. The views presented represent those of the authors, and not necessarily those of the institutions the authors are affiliated with.
“Foreign Direct Investment under Uncertainty”
From the conclusion to NBER WP No 29687 (paper), coauthored with Caroline Jardet and Cristina Jude (both Banque de France):
“Covid Impact and Macroeconomic Policy in Asia”
That’s the title of a presentation at the ASSA meetings (YouTube video of the presentation is here) in the ACAES panel “Covid and Recovery in Asia” (see below). Calla Wiemer presented, and I discussed. [Updated 1/19, links to slides added]
Global Economic Prospects – January 2022
From the World Bank report:
US Exports in the Wake of the Trade War
Compiling graphs for a trade course, and lo what did I see:
Do Exchange Rate Movements Equalize Yields?
Fama (JME, 1984), and Tryon (1979) demonstrated that changes in the exchange rate do not equal the forward premium, in what came to be known as the forward premium puzzle. Since the forward premium equals the interest differential in the absence of current and incipient capital controls and in the absence of default risk — this finding is equivalent to the result that interest rates, after accounting for exchange rate changes, are not equalized on average.
In other words, if the yield on the US default-risk-free bond is 2% and the yield on a UK default-risk-free bond is 5%, then the US dollar does not on average appreciate by 3% against the pound in order to equalize returns. This finding could be explained, for instance, by the presence of a time-varying exchange risk premium on pound sterling assets (vs. dollar assets); however, it’s not been easy to find robust evidence of determinants of such a time varying premium.
While this puzzle has largely persisted in the ensuing 25 years, it seemingly disappeared during and after the global financial crisis — until re-appearing in recent years.
