China’s Latest “Devaluation:” A Currency War in the Making?
China’s currency has, once again, been weakening against the dollar. It is down by more than 4 percent since October, including a fall of more than one percent just last week. Writing in the New York Times, Landon Thomas, Jr. warned that “China’s decision to push the value of its currency lower has opened a ... Read more
“Truth Teller” Donald Trump Fudges the Facts about Chinese Currency Manipulation
Donald Trump is surging in the GOP primary polls, partly on the basis of a carefully crafted reputation for telling it as it is. Even rival Ted Cruz thinks Trump is “teriffic” and “brash,” saying, “I think he tells the truth.” But when he comes to China’s exchange rate policy, he is about as far ... Read more
What Lies Behind the Plunge of the Ruble?
Russia’s economy is in trouble. Growth has come to a halt. A recession looms in 2015. Inflation, interest rates, and capital flight are up. The government’s budget is under strain. More than any of these, what makes the headlines is the plunge of the ruble, which, at one point in mid-December, had lost half of ... Read more
The Curse of Riches, the Dutch Disease, and Social Progress
The curse of riches or resource curse has been a staple of development economics for decades. The curse refers to the striking fact that many resource rich states, such as Nigeria and Congo, are conflict-ridden basket cases while some of the world’s best performing economies are islands or city-states, such as Japan, Taiwan, and Hong ... Read more
Eurozone: Competitiveness Indicators and the Failure of Internal Devaluation
Measures of ‘international competitiveness’, for example those based on broad wage, unit labour cost and price parameters are approximations only[1]. Some are more relevant than others. The purpose of this short article is to review the progress of external account adjustment and internal devaluation in Eurozone countries Unit Labour Cost Comparison Unit labour cost-based measures ... Read more
Brazil: Exchange Rate Policy
The Brazilian Central Bank cannot aim at placing a floor for the depreciation of the real. The announcement, on May 22, that QE3 would be gradually tapered in the future led to a turmoil in international financial markets, as investors turned back to developed economies’ assets, giving way to a significant depreciation of the emerging ... Read more
Why the Baltic Recovery is Not a Success Story for Austerity: Lessons for the US
While EU members along the shores of the Mediterranean struggle with a seemingly endless slump, others who dip their toes in the Baltic are making a strong comeback. As the following chart shows, real GDP growth in the Baltic 3—Estonia, Latvia, and Lithuania—has recently run well above the euro area average. Meanwhile, the Med 4—Greece, ... Read more
Why Latvia’s Decision to Join the Euro Makes Sense
Last week’s convergence report from the European Commission gave Latvia the green light to become the eighteenth member of the eurozone as of next January. “The eurozone is again a club with a queue–not at the exit but at the entrance,” crowed Herman Van Rompuy, president of the European Council. “Joining the eurozone will foster ... Read more
Is China Still a ‘Currency Manipulator’?
“On day one, I will label them a currency manipulator.” So spoke Mitt Romney during Monday’s Presidential debate, threatening, as he has innumerable times, to hit China with new tariffs if it doesn’t stop using a cheap yuan to steal U.S. jobs. But does the label still fit? We all know the story by heart. ... Read more
How the Latin Triangle Swallowed the Euro
Back in 1996, Rudiger Dornbusch wrote a paper about the political economy of exchange rates in Latin America. He called it “The Latin Triangle”. It describes a cycle in which governments become trapped in inappropriate fixed-exchange rates that inevitably end unhappily. Latin America has put that particular form of economic instability behind it, but a ... Read more