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Working Paper 12-5
Global Imbalances and Foreign Asset Expansion by Developing Economy Central Banks
[pdf]
Joseph E. Gagnon
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Over the past 10 years, central banks and governments throughout the developing world have accumulated foreign exchange reserves and other official assets at an unprecedented rate. This paper shows that this official asset accumulation has driven a substantial portion of the recent large global current account imbalances. These net official capital flows have become large relative to the size of the industrial economies, and they are a significant factor contributing to the weakness of the economic recovery in the major industrial economies.
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Op-ed
Greece's New Bonds: Is Another Default Coming?
Jacob Funk Kirkegaard
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Greece defaulted and nothing happened in the markets: no contagion, no panic, and no bank meltdown because it was fully anticipated. For the often maligned euro area crisis strategy of "kicking the can down the road," the events were an extraordinary vindication and success because nobody cared when Greece finally did default. The new concern is Greece's new long-term bonds that were thrust upon the country's hapless private creditors in a recent coercive bond swap. They have begun trading at greater than 20 percent yields. In what is probably an illiquid market, these yields suggest that markets expect a second Greek default against private creditors. The question, however, is whether this is a foregone conclusion, even if Greece requires additional euro area funding. A future populist Greek leadership might seek an exit to safeguard national sovereignty, despite what would be an accompanying economic disaster. However, after elections across the euro area periphery in Ireland, Portugal, and Spain, one has to ask: Where are the storied euro area populists actually coming to power? Upcoming Greek elections represent a new risk of populist gains, but such an outcome would go against a broad-based trend, setting Greece ever more apart from the rest Europe.
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Peterson Perspectives Interviews
Can the World Bank Adjust to a Changed World?
Arvind Subramanian assesses the prospects for Jim Yong Kim, President Obama's choice to head the bank, and the other aspirants to the job.
Have the BRICS Outlived Their Usefulness?
Arvind Subramanian says that Brazil, Russia, India, China, and South Africa (BRICS) seem to be struggling to find a common purpose at their latest meeting.
Would Tariffs on Chinese Solar Panels Increase Global Warming?
Gary Clyde Hufbauer discusses the tradeoffs between imposing duties on Chinese solar panels and the need to make solar energy competitive.
Europe's Continuing Risks
Edwin M. Truman says that while Europe's debt crisis has eased, it still needs to expand its own financial safety net before getting help from the International Monetary Fund.
Recent Blog Posts
PIIE Noted in the News and on the Web
Bloomberg
China Economy to Grow "Reasonably Strongly"
Europe remains a bigger risk to the global economy than China, says Nicholas R. Lardy. China's growth rate may slow, but it will still be growing. Lardy is author of Sustaining China's Economic Growth after the Global Financial Crisis.
Wall Street Journal China Real Time Report
Lardy: Don't Underestimate Danger of Property Crash
Nicholas R. Lardy notes that public officials have discussed housing market reform to avoid a potential property crash, but he doubts in an election year that any action will be taken.
Preview of Our Next Issue
Op-ed
Financial Repression: Then and Now
Jacob Funk Kirkegaard and Carmen M. Reinhart
Op-ed
Why BRICS Is No Good for Russia
Anders Åslund
Op-ed
Katherine Boo, India, and China
Arvind Subramanian
Working Paper
Transportation and Communication Infrastructure in Latin America:
Lessons from Asia
Barbara Kotschwar
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