As I discussed in earlier posts, China retains some policy autonomy by virtue of the presence of capital controls. A recent working paper by Ma and McCauley attempts to quantify how binding the controls are.
Whee!
Who knew holding short-term Treasuries could be so exciting?
Worse than 1998?
From IDEAGlobal, FX Alert, August 21:
What does the cut in the Fed’s discount rate signal?
Some analysts, and perhaps the market, seemed to view Friday’s cut in the Federal Reserve discount rate as a first step in lowering interest rates generally. That view may prove to be correct, though I’m inclined to look first for an explanation in terms of the narrow tactical challenges of managing current liquidity needs.
Saving Glut Reversed? A Historical Analogy and Conjecture about US Adjustment
One interpretation of recent global capital flows is that the collapse in investment in East Asia post-crisis, combined with stable saving rates in ex-China developing Asia, led to an excess of saving in that region (so really the term of “investment drought” is better). Note that there was no excess saving until the collapse of unsustainable lending associated with bubbles, or crony capitalism, or — in other models — behavior of investors implicitly “insured” against losses. While this is a voluminous literature, it’s interesting to me that few analysts have observed that a similar occurence can not be ruled out in the current unfolding drama in the ever expanding but always containable subprime mortgage crisis.
Where’s the risk?
Usually an economic downturn is associated in a big increase in the spread between corporate and Treasury yields. This spiked pretty dramatically last week, but still has a long way to go.
Europe Slows
Part of the optimism regarding the economic outlook is based upon the robust growth — to date — in the rest of the world (see this post on the subject). The Euro zone looks like it’s in for some slower growth, though.
Myths about, and Empirics on, Chinese Trade and FDI
There is a lot of hyperbole surrounding China’s entry into the world trading system. There is fear in countries that compete with China, there is fear that China is somehow orchestrating the transfer of technological prowess from foreign to domestic firms, and a host of other anxieties.
China, Reserve Accumulation, and (Further) Threats to Financial Stability
Another roller coaster week
Glad I wasn’t trying to provide a play-by-play explanation of fed funds futures last week. But whatever was going on, we seemed to end up with the same conclusion with which the week began.