The most obvious explanation for the large and widening US current account deficit is the high budget deficit and low national saving. But a variety of clever economists have come up with 8 other, more sanguine, explanations: (1) the siblings are not twins, (2) investment boom, (3) low US private savings, (4) global savings glut , (5) “It’s a big world ” (6) valuation effects will pay for it, (7) “Intermediation rents…pay for the trade deficits,” and (8) China’s development strategy entails accumulating unlimited dollars. The impressive paper by Caballero, Farhis, and Gourinchas falls under category (7). Their theoretical model is innovative and interesting, and has the virtue of being able to explain the current account deficit together with the anomalously low long-term interest rates during 2001-2005. The basic idea is that fast growth in emerging markets coupled with their inability to generate local store of value instruments increases their demand for saving instruments from the developed countries. More growth potential in the United States than in Europe means that a larger share of global saving flows to US assets. Ultimately, however, I am not sure that it is the correct explanation, or a reason to consider the deficits sustainable, any more than the others. Their hypothesized collapse in the desirability of emerging market assets and stagnant growth in Europe and Japan fit the 1990s fairly well. But they don’t fit 2003-2006 as well, which is the puzzle period, that is, the period that featured the record US current account deficits coinciding with low long-term interest rates. Emerging markets have had a high capacity during 2003-06 to generate assets that others want. More persuasive is the hypothesis that the US continues to exploit the exorbitant privilege under which others accumulate dollars as reserves, but that this exclusive position of the dollar will not necessarily continue forever.
{"title":"Global Imbalances and Low Interest Rates: An Equilibrium Model vs. A Disequilibrium Reality","authors":"J. Frankel","doi":"10.2139/SSRN.902385","DOIUrl":"https://doi.org/10.2139/SSRN.902385","url":null,"abstract":"The most obvious explanation for the large and widening US current account deficit is the high budget deficit and low national saving. But a variety of clever economists have come up with 8 other, more sanguine, explanations: (1) the siblings are not twins, (2) investment boom, (3) low US private savings, (4) global savings glut , (5) “It’s a big world ” (6) valuation effects will pay for it, (7) “Intermediation rents…pay for the trade deficits,” and (8) China’s development strategy entails accumulating unlimited dollars. The impressive paper by Caballero, Farhis, and Gourinchas falls under category (7). Their theoretical model is innovative and interesting, and has the virtue of being able to explain the current account deficit together with the anomalously low long-term interest rates during 2001-2005. The basic idea is that fast growth in emerging markets coupled with their inability to generate local store of value instruments increases their demand for saving instruments from the developed countries. More growth potential in the United States than in Europe means that a larger share of global saving flows to US assets. Ultimately, however, I am not sure that it is the correct explanation, or a reason to consider the deficits sustainable, any more than the others. Their hypothesized collapse in the desirability of emerging market assets and stagnant growth in Europe and Japan fit the 1990s fairly well. But they don’t fit 2003-2006 as well, which is the puzzle period, that is, the period that featured the record US current account deficits coinciding with low long-term interest rates. Emerging markets have had a high capacity during 2003-06 to generate assets that others want. More persuasive is the hypothesis that the US continues to exploit the exorbitant privilege under which others accumulate dollars as reserves, but that this exclusive position of the dollar will not necessarily continue forever.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124214438","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Many studies have replicated the finding that the forward rate is a biased predictor of the future change in the spot exchange rate. Usually the forward discount actually points in the wrong direction. But, at least until recently, those studies applied only to advanced economies and major currencies. We apply the same tests to a sample of 14 emerging market currencies. We find a smaller bias than for advanced country currencies. The coefficient is on average positive, i.e., the forward discount at least points in the right direction. It is never significantly less than zero. To us this suggests that a time-varying exchange risk premium may not be the explanation for traditional findings of bias. The reasoning is that emerging markets are probably riskier; yet we find that the bias in their forward rates is smaller. Emerging market currencies probably have more easily-identified trends of depreciation than currencies of advanced countries.
{"title":"The Forward Market in Emerging Currencies: Less Biased than in Major Currencies","authors":"J. Frankel, Jumana Poonawala","doi":"10.3386/W12496","DOIUrl":"https://doi.org/10.3386/W12496","url":null,"abstract":"Many studies have replicated the finding that the forward rate is a biased predictor of the future change in the spot exchange rate. Usually the forward discount actually points in the wrong direction. But, at least until recently, those studies applied only to advanced economies and major currencies. We apply the same tests to a sample of 14 emerging market currencies. We find a smaller bias than for advanced country currencies. The coefficient is on average positive, i.e., the forward discount at least points in the right direction. It is never significantly less than zero. To us this suggests that a time-varying exchange risk premium may not be the explanation for traditional findings of bias. The reasoning is that emerging markets are probably riskier; yet we find that the bias in their forward rates is smaller. Emerging market currencies probably have more easily-identified trends of depreciation than currencies of advanced countries.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134467129","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
China’s economic and social achievements since the beginning of reform and opening are unprecedented in global history. Managing the growth process in this continuously changing environment has required great skill and the use of unconventional economic policy. Now China has entered a new era in its development process with a set of challenges largely different from those of the recent past. Some problems - such as growing internal and external structural imbalances, increasing income and regional inequality – have arisen from, or been exacerbated by, the very pattern and success of high growth since reforms began. Others are newly posed by rapid changes in the global economy. These challenges can best be tackled in an integrated and coordinated fashion. This report, supported by the China Economic Research and Advisory Programme (CERAP), identifies the primary challenges facing China today and presents options for meeting them. [Jointly published as Center for International Development Working Paper No. 126 and KSG Faculty Research Working Paper Series RWP06-029.]
{"title":"China and the Global Economy: Medium-Term Issues and Options - a Synthesis Report","authors":"R. Hausmann, E. Lim, A. Spence","doi":"10.2139/ssrn.902379","DOIUrl":"https://doi.org/10.2139/ssrn.902379","url":null,"abstract":"China’s economic and social achievements since the beginning of reform and opening are unprecedented in global history. Managing the growth process in this continuously changing environment has required great skill and the use of unconventional economic policy. Now China has entered a new era in its development process with a set of challenges largely different from those of the recent past. Some problems - such as growing internal and external structural imbalances, increasing income and regional inequality – have arisen from, or been exacerbated by, the very pattern and success of high growth since reforms began. Others are newly posed by rapid changes in the global economy. These challenges can best be tackled in an integrated and coordinated fashion. This report, supported by the China Economic Research and Advisory Programme (CERAP), identifies the primary challenges facing China today and presents options for meeting them. [Jointly published as Center for International Development Working Paper No. 126 and KSG Faculty Research Working Paper Series RWP06-029.]","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"239 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115230087","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate whether changes in economic inequality affect mortality in rich countries. To answer this question we use a new source of data on income inequality: tax data on the share of pretax income going to the richest 10 percent of the population in Australia, Canada, France, Germany, Ireland, the Netherlands, New Zealand, Spain, Sweden, Switzerland, the UK, and the US between 1903 and 2003. Although this measure is not a good proxy for inequality within the bottom half of the income distribution, it is a good proxy for changes in the top half of the distribution and for the Gini coefficient. In the absence of country and year fixed effects, the income share of the top decile is negatively related to life expectancy and positively related to infant mortality. However, in our preferred fixed-effects specification these relationships are weak, statistically insignificant, and likely to change their sign. Nor do our data suggest that changes in the income share of the richest 10 percent affect homicide or suicide rates.
{"title":"Inequality and Mortality: Long-Run Evidence from a Panel of Countries","authors":"A. Leigh, Christopher Jencks","doi":"10.2139/ssrn.902381","DOIUrl":"https://doi.org/10.2139/ssrn.902381","url":null,"abstract":"We investigate whether changes in economic inequality affect mortality in rich countries. To answer this question we use a new source of data on income inequality: tax data on the share of pretax income going to the richest 10 percent of the population in Australia, Canada, France, Germany, Ireland, the Netherlands, New Zealand, Spain, Sweden, Switzerland, the UK, and the US between 1903 and 2003. Although this measure is not a good proxy for inequality within the bottom half of the income distribution, it is a good proxy for changes in the top half of the distribution and for the Gini coefficient. In the absence of country and year fixed effects, the income share of the top decile is negatively related to life expectancy and positively related to infant mortality. However, in our preferred fixed-effects specification these relationships are weak, statistically insignificant, and likely to change their sign. Nor do our data suggest that changes in the income share of the richest 10 percent affect homicide or suicide rates.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"92 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115574807","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
To what extent is a country allowed to regulate immigration into its territory, and thus to determine who lives there? Acts of immigration amount to changes in two distinct relationships. They amount to a change in political relationships, since the immigrant alters her political standing within one community and acquires a new political status in her country of admission. Immigration represents, however, also an alteration in physical relationship, since the individual acquires a relationship to a particular piece of territory, making a life for herself with the resources offered by a specific part of the earth. This last form of relationship, we contend, is worthy of independent examination from the standpoint of justice, and opening up that line of inquiry is what this study seeks to do. This inquiry begins from the relationship of people to property, and asks whether that relationship imposes independent moral constraints on immigration controls.
{"title":"Is There a Human Right to Free Movement? Immigration and Original Ownership of the Earth","authors":"M. Blake, Mathias Risse","doi":"10.2139/SSRN.902383","DOIUrl":"https://doi.org/10.2139/SSRN.902383","url":null,"abstract":"To what extent is a country allowed to regulate immigration into its territory, and thus to determine who lives there? Acts of immigration amount to changes in two distinct relationships. They amount to a change in political relationships, since the immigrant alters her political standing within one community and acquires a new political status in her country of admission. Immigration represents, however, also an alteration in physical relationship, since the individual acquires a relationship to a particular piece of territory, making a life for herself with the resources offered by a specific part of the earth. This last form of relationship, we contend, is worthy of independent examination from the standpoint of justice, and opening up that line of inquiry is what this study seeks to do. This inquiry begins from the relationship of people to property, and asks whether that relationship imposes independent moral constraints on immigration controls.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131549598","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper discusses a research agenda that arises from unanswered questions and unresolved issues considered in the World Bank's World Development Report 2006: Equity and Development. After formalizing the key concepts of equity; equality of opportunity; and efficiency, and proposing a definition for an equitable development policy, the paper discusses the concept of inequality traps, around which the research agenda is structured. Four broad groups of research questions are highlighted: those revolving around the measurement of inequality of opportunity and the diagnostics for the existence of an inequality trap; those dealing with the causes of inequality traps; the quantification of their efficiency costs; and those related to how institutions (including governments) evolve to overcome inequality traps.
{"title":"Equity, Efficient and Inequality Traps: A Research Agenda","authors":"F. Bourguignon, F. Ferreira, M. Walton","doi":"10.2139/ssrn.902376","DOIUrl":"https://doi.org/10.2139/ssrn.902376","url":null,"abstract":"This paper discusses a research agenda that arises from unanswered questions and unresolved issues considered in the World Bank's World Development Report 2006: Equity and Development. After formalizing the key concepts of equity; equality of opportunity; and efficiency, and proposing a definition for an equitable development policy, the paper discusses the concept of inequality traps, around which the research agenda is structured. Four broad groups of research questions are highlighted: those revolving around the measurement of inequality of opportunity and the diagnostics for the existence of an inequality trap; those dealing with the causes of inequality traps; the quantification of their efficiency costs; and those related to how institutions (including governments) evolve to overcome inequality traps.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"137 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124343143","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In an increasingly interconnected world it has become hard to say what actually is so special about the state, and why there would be duties of any sort that apply among fellow citizens, but not among those who do not share a state. This study explains how dealing with this problem has become inevitable; discusses the most promising accounts of the normative peculiarity of states (in terms of coercive structures), and, finding some fault with these specific accounts (which are due to Michael Blake and Thomas Nagel), offers a modified version of this approach in terms of coercive structures.
{"title":"What to Say About the State","authors":"Mathias Risse","doi":"10.2139/ssrn.890753","DOIUrl":"https://doi.org/10.2139/ssrn.890753","url":null,"abstract":"In an increasingly interconnected world it has become hard to say what actually is so special about the state, and why there would be duties of any sort that apply among fellow citizens, but not among those who do not share a state. This study explains how dealing with this problem has become inevitable; discusses the most promising accounts of the normative peculiarity of states (in terms of coercive structures), and, finding some fault with these specific accounts (which are due to Michael Blake and Thomas Nagel), offers a modified version of this approach in terms of coercive structures.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130087972","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Thomas Schelling, winner of the 2005 Nobel Memorial Prize in Economics, was a Founding Father of the Kennedy School of Government. He served the School warmly and well for many years. Schelling always served as an inspiration for his creativity, and as an exemplar for his ability to make his writings scholarly, broadly general, and of great policy import. His path breaking essays and books provide an anatomy of human behavior in the individual, the dyad, and the larger group. This essay was written as the preface for a forthcoming biography by Robert Dodge, titled The Strategist, The Life and Times of Thomas Schelling.
{"title":"Thomas Schelling, Ricochet Thinker","authors":"R. Zeckhauser","doi":"10.2139/SSRN.939654","DOIUrl":"https://doi.org/10.2139/SSRN.939654","url":null,"abstract":"Thomas Schelling, winner of the 2005 Nobel Memorial Prize in Economics, was a Founding Father of the Kennedy School of Government. He served the School warmly and well for many years. Schelling always served as an inspiration for his creativity, and as an exemplar for his ability to make his writings scholarly, broadly general, and of great policy import. His path breaking essays and books provide an anatomy of human behavior in the individual, the dyad, and the larger group. This essay was written as the preface for a forthcoming biography by Robert Dodge, titled The Strategist, The Life and Times of Thomas Schelling.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"255 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123996483","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Many economic and social networks share two common organizing features: (1) a core-periphery structure; (2) positive correlation between network centrality and payoffs. In this paper, we build a model of network formation where these features emerge endogenously. In our model, the unique equilibrium network architecture is a periphery-sponsored star. In this equilibrium, one player, the center, maintains no links and achieves a high payoff, while all other players maintain a single link to the center and achieve lower payoffs. With heterogeneous groups, equilibrium networks are interconnected stars. We show that small minorities tend to integrate while large minorities are self-sufficient. Although any player can be the center in a static equilibrium, evolution selects the agent with most valuable resources as the center in the long run. In particular, even small inequalities in resources can lead to large payoff inequality because of the endogenous social structure. Our main results are robust to the introduction of transfers and bargaining over link costs.
{"title":"Core and Periphery in Endogenous Networks","authors":"Daniel A. Hojman, Adam Szeidl","doi":"10.2139/ssrn.902378","DOIUrl":"https://doi.org/10.2139/ssrn.902378","url":null,"abstract":"Many economic and social networks share two common organizing features: (1) a core-periphery structure; (2) positive correlation between network centrality and payoffs. In this paper, we build a model of network formation where these features emerge endogenously. In our model, the unique equilibrium network architecture is a periphery-sponsored star. In this equilibrium, one player, the center, maintains no links and achieves a high payoff, while all other players maintain a single link to the center and achieve lower payoffs. With heterogeneous groups, equilibrium networks are interconnected stars. We show that small minorities tend to integrate while large minorities are self-sufficient. Although any player can be the center in a static equilibrium, evolution selects the agent with most valuable resources as the center in the long run. In particular, even small inequalities in resources can lead to large payoff inequality because of the endogenous social structure. Our main results are robust to the introduction of transfers and bargaining over link costs.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128182294","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article examines the arguments concerning enhancement of human persons recently presented by Michael Sandel. In the first section, I briefly describe some of his arguments. In section two, I consider whether, as Sandel claims, the desire for mastery motivates enhancement and whether such a desire could be grounds for its impermissibility. Section three considers how Sandel draws the distinction between treatment and enhancement, and the relation to nature that he thinks each expresses. The fourth section examines Sandel's views about parent/child relations and also how enhancement would affect distributive justice and the duty to aid. In conclusion, I briefly offer an alternative suggestion as to why enhancement may be troubling and consider what we could safely enhance.
{"title":"What is and is Not Wrong with Enhancement?","authors":"F. Kamm","doi":"10.2139/ssrn.902372","DOIUrl":"https://doi.org/10.2139/ssrn.902372","url":null,"abstract":"This article examines the arguments concerning enhancement of human persons recently presented by Michael Sandel. In the first section, I briefly describe some of his arguments. In section two, I consider whether, as Sandel claims, the desire for mastery motivates enhancement and whether such a desire could be grounds for its impermissibility. Section three considers how Sandel draws the distinction between treatment and enhancement, and the relation to nature that he thinks each expresses. The fourth section examines Sandel's views about parent/child relations and also how enhancement would affect distributive justice and the duty to aid. In conclusion, I briefly offer an alternative suggestion as to why enhancement may be troubling and consider what we could safely enhance.","PeriodicalId":110014,"journal":{"name":"John F. Kennedy School of Government Faculty Research Working Paper Series","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126250783","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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