The Political Economy of Recovery and Rebalancing

Jeffry Frieden, Professor of Government at Harvard, has a new Council of Foreign Relations working paper “Global Imbalances, National Rebalancing, and the Political Economy of Recovery” :

Global macroeconomic imbalances — massive borrowing by some countries and massive lending by others — drove the financial boom and bubble that eventually burst into the current crisis. There is now nearly universal agreement that such imbalances cannot be sustained, and that the former deficit and surplus nations need to move toward macroeconomic balance.

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Guest Contribution: East Asian Production Networks, Global Imbalances, and Exchange Rate Coordination

By Willem Thorbecke

Today, we’re fortunate to have Willem Thorbecke, Senior Research Fellow at Asian Development Bank Institute and a Consulting Fellow at Japan’s Research Institute of Economy, Trade and Industry, as a guest contributor.

Asia’s role in the propagation of the global recession has been a subject of study, but relatively little attention has been devoted to the interaction of exchange rates and production chains. The structure of East Asian production networks and the severity of the recession places a premium on policy coordination in the region.

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Targeted liquidity operations

During the last two years, the Federal Reserve responded to problems in the financial markets through what I have described as monetary policy using the asset side of the Fed’s balance sheet, replacing its traditional holdings of Treasury securities with a variety of new lending programs and alternative assets. I’ve been taking a look at what effect these operations seem to have had on the problems they were designed to address.

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Two Views: Blame It on Beijing Redux, or Joint Determination

From the abstract to Why are we in a recession? The Financial Crisis is the Symptom not the Disease!, by Ravi Jagannathan, Mudit Kapoor, and Ernst Schaumburg:

…We argue that the large increase in the developed world’s labor supply, triggered by geo-political
events and technological innovations, is the major underlying cause of the global macro economic
imbalances that led to the great recession. …

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Trade Procyclicality in the Current Recession: The View from the US

Paul Krugman recently characterized the current pace of trade activity as worse than that during the Great Depression. And indeed, Barry Eichengreen and Kevin O’Rourke have been diligent in illustrating how this is the case, most recently in this September VoxEU post. Caroline Freund ([pdf] here) as well as the IMF in its most recent World Economic Outlook (Box 1.1) attribute the sharp drop-off in world trade to high income elasticities, in part associated with the high degree of vertical integration that characterizes the globalized world economy. Below, I want to examine that explanation from the perspective of the US data. This follows up on several of my recent posts on the subject. [0] [1] [2] [3]

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