Asia’s Supply Chain and Global Rebalancing


By Anoop Singh

Much of the debate over global rebalancing has focused on the U.S.-China trade imbalance. But that’s missing the bigger picture.

With the growth of cross-border supply chains—a signature feature of Asia’s trade in recent decades—it would be misleading to focus on bilateral imbalances and exchange rates.

Instead of specializing in producing certain types of final goods, Asian exporters increasingly have specialized in certain stages of production and become vertically integrated with each other. So, as Asia’s economies strive to rebalance their growth models, we need to understand better how the regional supply chain affects the way exchange rates and shifts in global demand work. Continue reading

Rewriting the Macroeconomists’ Playbook in the Wake of the Crisis


By Olivier Blanchard

Before the global economic crisis, mainstream macroeconomists had largely converged on a framework for the conduct of macroeconomic policy. The framework was elegant, and conceptually simple. Caricaturing just a bit, it went like this:

  • The essential goal of monetary policy was low and stable inflation. The best way to achieve it was to follow an interest rate rule. If designed right, the rule was not only credible, but delivered stable inflation and ensured that output was as close as it could be to its potential. Continue reading

Emerging Europe—Lessons from the Boom-Bust Cycle


By Ajai Chopra

Almost unnoticed, amid the difficulties in western Europe, the other half of the continent has begun to recover from the deepest slump in its post-transition period. The emerging economies in central and eastern Europe will grow by 3¾ percent this year and next—a relief after the 6 percent decline in 2009.

Why was the crisis so severe—and how do we avoid a repeat? We consider just that question in our fall 2010 Regional Economic Outlook: Europe. While the crisis was triggered by external shocks, it is clear that domestic imbalances and policies also played a key role. Continue reading

The Two Rebalancing Acts


By Olivier Blanchard

Achieving a “strong, balanced, and sustained world recovery”—to quote from the goal set in Pittsburgh by the G-20—was never going to be easy. It requires much more than just going back to business as usual. It requires two fundamental and complex economic rebalancing acts.

First, internal rebalancing. When private demand collapsed, fiscal stimulus helped reduce the fall in output. This helped avoid the worst. But private demand must now become strong enough to take the lead and sustain growth, while fiscal stimulus gives way to fiscal consolidation.

The second is external rebalancing. Many advanced countries, most notably the United States, relied excessively on domestic demand before the crisis, and they must now rely more on net exports. Many emerging market countries, most notably China, had relied excessively on net exports, but must now look to domestic demand. Continue reading

High International Reserves: An Embarrassment of Riches?


By Reza Moghadam

Once upon a time, those tracking international reserves focused on simple measures of reserve adequacy—enough to cover, say, 3 months of imports or all of the external debt maturing over the next year. However, the relevance of such yardsticks evaporated as a number of countries accumulated reserves that far surpass such levels, partly in reaction to emerging market financial crises of the 1990s and early part of this decade. Brazil’s reserves now exceed $200 billion, while Russia’s are more than $400 billion—and even these numbers are dwarfed by China’s reserves, which top $2,000 billion

Reserves are rising, driven by emerging markets and, increasingly, low-income countries

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