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Korea's decision to delay joining the Trans-Pacific Partnership (TPP) talks was a tactical mistake, says Jeffrey J. Schott. As a major trading nation, it stands to reap large gains from increased trade and investment with TPP countries and should opt to join the TPP as soon as the window for entry reopens.
See also:
TPP Talks: Getting to Yes
What You Need to Know about the Trans-Pacific Partnership

After the closing of banks in Greece on June 28 in the run-up to the referendum of July 5 and its associated risk of Grexit, the combination of large new bank recapitalization needs and the downgrading of growth prospects and plausible fiscal performance caused the IMF to insist that further debt relief will now be necessary. William R. Cline examines whether and to what extent additional debt relief is needed in Greece under the new circumstances.

Antoine Gervais and J. Bradford Jensen use a unique dataset on the distribution of output and demand across regions of the United States to estimate the share of economic activity exposed to international competition and find that accounting for tradable services nearly doubles the international trade exposure of the American economy.

In an Economist debate forum, Adam S. Posen explains that it is natural for economies to grow and a sign of disorder when they do not. Furthermore, he argues that growth in rich countries helps alleviate, not aggravate, the global problems of climate change, water scarcity, and poverty reduction.

audio Sanctions on Iran: Why They Worked and Why a 'Snapback' May Not Work
Gary Clyde Hufbauer explains that economic sanctions on Iran resulted from complex financial and diplomatic activity by Washington, complicating the challenge should sanctions have to be reimposed.

Simon Johnson testifies that if authorities are unwilling or unable to simplify and downsize too-big-too-fail banks, they should substantially increase the required amount of loss absorbing equity for those firms.

Adam S. Posen testifies before the Senate Committee on Banking, Housing, and Urban Affairs that the international Financial Stability Board [pdf] is a useful check and occasional corrective to the US Financial Stability Oversight Council process, and it can also produce some good international standards, thus serving US economic interests. The FSB's attempt to extend Solvency II, the European Commission's regulation for insurance firms, to global application, is however a mistake.

The Federal Reserve and other regulators seem to have followed both the letter and spirit of the Dodd-Frank financial reform [pdf] instruction to more carefully regulate bank holding companies with more than $50 billion in total assets, says Simon Johnson in testimony before the House Financial Services Committee.

Under Prime Minister Orbán, economic policy in Hungary has increased the role of the state in many sectors of the economy, either through outright nationalization or through aggressive regulatory changes. Policy Brief 15-11 by Simeon Djankov.

Gary Clyde Hufbauer and Cathleen Cimino-Isaacs review the main elements of the Trans-Pacific Partnership and summarize the most difficult issues remaining in the last leg of negotiations.

The World Trade Organization (WTO) needs a grand bargain [pdf] to pursue 21st century pacts that keep policymakers, business leaders, and the public engaged, while answering the legitimate demands of developing members to reduce longstanding distortions to farm trade and manufactures. Report by Gary Clyde Hufbauer, Euijin Jung, Sean Miner, Tyler Moran, and Jeffrey J. Schott.

Brazil's state-owned development bank BNDES has evolved into an institution that provides long-term credit to very large and profitable companies, helping to perpetuate a cycle of high interest rates and relatively low investment rates, writes Monica de Bolle.

Caroline Freund and Sarah Oliver find that harmonizing automobile regulations under the Trans-Atlantic Trade and Investment Partnership would increase US-EU auto trade by at least 20 percent, resulting in national income gains for both partners together of over $20 billion per year in the long run. Policy Brief 15-10.

William R. Cline warns that findings of recent studies from the IMF and Bank for International Settlements that “too much finance” reduces growth should be viewed with considerable caution. Policy Brief 15-9.

New estimates of fundamental equilibrium exchange rates (FEERs) find the major currencies are now misaligned, with the US dollar moderately overvalued and the euro and yen modestly undervalued. However, the Chinese yuan is no longer undervalued. Policy Brief 15-8 by William R. Cline.

William R. Cline examines the basis for concerns about inflation caused by quantitative easing in terms of the quantity theory of money, and finds that inflation has remained low despite a large buildup in the Fed's balance sheet not because the velocity of broad money has collapsed, but because the money multiplier has done so. Policy Brief 15-7.

José De Gregorio finds that the recent growth slowdown in Latin America was not caused by external factors but was mostly cyclical in nature and a result of low productivity growth. Policy Brief 15-6.

Global income inequality will decline further in 2035, largely owing to rapid economic growth in the emerging-market economies, with India, China, and Sub-Saharan Africa reaping the most gains. Working Paper 15-7 by Tomas Hellebrandt and Paolo Mauro.

William R. Cline examines the empirical evidence on the Modigliani-Miller capital structure irrelevance proposition as applied to the banking sector. The central question he addresses is whether more highly capitalized banks do indeed enjoy lower costs of equity capital. Working Paper 15-8.

Avinash D. Persaud assesses the risks and dangers of Solvency II, the new EU directive for regulating insurance companies, and recommends an alternative approach. Policy Brief 15-5.

William R. Cline finds that the financial sectors in Asian emerging-market economies are now relatively unlikely to provoke new financial crises, either because of reforms after the East Asian financial crisis in the later 1990s or because of the dominance of state-owned banks not subject to bank runs. Working Paper 15-5.

Nicholas Borst and Nicholas R. Lardy trace the evolution of China's financial system away from a traditional bank-dominated and state-directed financial system toward a more complex, market-based system and analyze the optimal sequence of financial reforms needed to manage the new risks accompanying this evolution. Working Paper 15-4.

The vital role of innovation and knowledge in Asia's productivity growth and hence economic growth makes it critical that its financial system be able to channel more funds at lower cost to entrepreneurs and new firms in the future. Working Paper 15-3 by Gemma B. Estrada, Marcus Noland, Donghyun Park, and Arief Ramayandi.

http://bookstore.piie.com/book-store/6970.htmlNew Book: The Great Rebirth: Lessons from the Victory of Capitalism over Communism

Anders Åslund
Simeon Djankov, eds.

Release Event | News Release

In NAFTA 20 Years Later, part of a new series of publications called PIIE Briefings, Institute scholars and experts assess the record two decades after the approval of the North American Free Trade Agreement.


Bridging the Pacific: Toward Free Trade and Investment between China and the United StatesNew Book: Bridging the Pacific: Toward Free Trade and Investment between China and the United States

by C. Fred Bergsten, Gary Clyde Hufbauer, and Sean Miner, assisted by Tyler Moran

Release Event | News Release

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