From PredictIt this morning:
Category Archives: international
“New Foreign Direct Investment in the United States”
Some people think that foreign direct investment into the United States has surged as confidence in the American economy has risen under Mr. Trump’s administration. The data do not support such a supposition. From BEA:
The Trumpian World as Natural Experiment
The Trump economic policy regime (if it can be called that) has provided several “natural experiments”. Do corporate tax rate reductions “pay for themselves”? Does expansionary fiscal policy at full employment lead to large increases in output? Does increasing trade protection necessarily lead to an increase in the trade balance? Does a bellicose and confused trade negotiating stance accelerate fixed investment? I think the answers are No, No, No, and No. On this last point, see Altig et al. on Macroblog:
Why Is the 2019 Slowdown Different than the 2016 Slowdown?
Consider the rest-of-the-world… Who’s going to pick up the slack this time?
Guest Contribution: “Weaponization of the Dollar May Backfire”
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 shorter version appeared in Project Syndicate.
Guest Contribution: “It’s Finally Time for German Fiscal Expansion”
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 shorter version appeared in Project Syndicate.
“The Economic Effects of Trade Policy Uncertainty”
That’s the title of a new paper by Dario Caldara, Matteo Iacoviello, Patrick Molligo, Andrea Prestipino, and Andrea Raffo:
Chinn-Ito Financial Openness Index, Updated to 2017
See the website for the data.
Back-of-the-Envelope Calculation of Trump Induced Dollar Appreciation
“Purchasing Power Parity and Real Exchange Rates”
That’s my new entry in the Oxford Research Encyclopedia of Economics and Finance.
The idea that prices and exchange rates adjust so as to equalize the common-currency price of identical bundles of goods—purchasing power parity (PPP)—is a topic of central importance in international finance. If PPP holds continuously, then nominal exchange rate changes do not influence trade flows. If PPP does not hold in the short run, but does in the long run, then monetary factors can affect the real exchange rate only temporarily. Substantial evidence has accumulated—with the advent of new statistical tests, alternative data sets, and longer spans of data—that purchasing power parity does not typically hold in the short run. One reason why PPP doesn’t hold in the short run might be due to sticky prices, in combination with other factors, such as trade barriers. The evidence is mixed for the longer run. Variations in the real exchange rate in the longer run can also be driven by shocks to demand, arising from changes in government spending, the terms of trade, as well as wealth and debt stocks. At time horizon of decades, trend movements in the real exchange rate—that is, systematically trending deviations in PPP—could be due to the presence of nontraded goods, combined with real factors such as differentials in productivity growth. The well-known positive association between the price level and income levels—also known as the “Penn Effect”—is consistent with this channel. Whether PPP holds then depends on the time period, the time horizon, and the currencies examined.