Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
May 30, 2013

"Washington's premier think tank on the global economy"
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  Congressional Testimony
European Union Economic Relations: Crisis and Opportunity

Douglas A. Rediker
  Douglas A. Rediker The European Union and the introduction of the euro are fundamentally political projects. To understand European economic issues, one needs therefore to always look primarily through a political prism. On that basis, Europe's response to its debt crisis has been far more aggressive, effective, and positive than has generally been acknowledged. Although there are still risks, Europe is more stable and prepared for future events than could have been predicted three years ago. While frustrating, inefficient, complicated, and often painful to watch, the evolution of the European Union is something the United States should encourage. Its future success serves American economic, financial, and strategic interests.

>> Read full testimony [pdf]

  Policy Brief 13-13
Sizing Up US Export Disincentives for a New Generation of National-Security Export Controls

J. David Richardson and Asha Sundaram
  J. David Richardson In the early 1990s, US export controls aimed at keeping high-tech goods and technologies from American national security threats deterred $15 to $25 billion of such exports. Recent US export controls seem to have been less successful. In seven broad industrial categories, American export shortfalls resulting from national security controls are estimated to have fallen from 5 percent to slightly over 1 percent from the early 1990s to the mid-to-late 2000s, implying that reform of these controls have had only a modest effect. American exporters seem to have learned how to shift their sales efforts among customers and products that are subject to varying degrees of control. Similarly, important importing countries seem to have developed an ability to shift their sourcing flexibly among alternative suppliers, including a growing set of emerging exporters of high-tech goods. The importers are, however, still denied half their potential high-tech products from the ten exporters studied by the authors.

>> Read full Policy Brief [pdf]

  Policy Brief 13-14
Shadow Deposits as a Source of Financial Instability: Lessons from the American Experience for China

Nicholas Borst
  Nicholas Borst In less than a decade, China has developed a shadow deposit system similar in scope and function to money market mutual funds in the United States. Wealth management products in China have emerged as an important source of short-term financing for the Chinese economy and are likely to continue to grow in coming years. These products promise savers higher interest rates than the controlled rates on traditional bank deposits but offer fewer investor protections. Lacking such protections, these financing pools are vulnerable to rapid retrenchment when investors reevaluate the risk in response to financial difficulties. Consequently, a source of potential financial instability has been created in the Chinese economy. US experience in regulating shadow deposits offers useful lessons for China to guide its own financial development in a healthier direction.

>> Read full Policy Brief [pdf]

India: Underperforming Even in Good Times

Arvind Subramanian
Published in the Business Standard, New Delhi
  Arvind Subramanian Popular wisdom holds that India's economy has performed exceedingly well, with growth rates second only to China in recent years. Arvind Subramanian reassesses this perception by comparing India's performance in good years with that of seven other Asian countries—China, Indonesia, Korea, Malaysia, Singapore, Taiwan, and Thailand—during their high-growth episodes. In the post-1979 period, India grew slower than every benchmark country despite being poorer to start with. Thus on a convergence-adjusted basis, its performance was worse than the simple numbers suggest. During 2002–12, India still grew slower than every other Asian country (except Thailand) did during its first 10 years of rapid growth. Why India has underperformed, and how this can be reversed, will continue to be the staple of debate.

>> Read full op-ed

Peterson Perspectives Interviews

audio  A New US-China Relationship? Part I
Nicholas R. Lardy assesses the outlook for the Obama–Xi Jinping Summit in California on June 6-7.

audio  A New US-China Relationship? Part II
Nicholas R. Lardy says the Chinese leadership's stated intention to liberalize the domestic economy could portend important changes sought by the United States.

audio  Are Tax Avoidance 'Havens' a Bad Thing? Part I
Nicolas Véron explains why low-tax havens in Europe like Ireland and Luxembourg are a legitimate business model and will be hard to suppress.

audio  Are Tax Avoidance 'Havens' a Bad Thing? Part II
Nicolas Véron says Europe has taken a step forward in requiring European banks to exchange information to crack down on tax evasion.

audio  A Misguided Fix on Solar Panels?
Gary Clyde Hufbauer says that a reported US-EU-China accord to raise prices of solar panels will harm consumers and the solar energy industry.

Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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Managing International Capital Flows: The IMF's "Institutional View" Falls Short

The IMF Revisits Sovereign Debt Restructuring, Not the SDRM

Self-Defeating Austerity and the Improved US Fiscal Outlook

Will the Pacific Alliance Succeed in Latin America After Other Trade Pacts Have Failed?

The ECB Should Act to Avert the Risk of Deflation in the Euro Area
  Buyer Beware: The Risk to Institutional Investors Financing China's Local Government Debt

An Estimate of Excess Borrowing by Chinese Corporations

Is China's Public Debt Level Sustainable?

China's Bank-Centric Shadow Banking System

China's International Investment Position in 2012
  Sources: New Books from Bechtol and Lankov

Is China Subsidizing the DPRK? Part One: Food

What Happened in Beijing? The Choe Ryong-hae Visit

Glimpses: Eric Lafforgue's Photos of Korean Soldiers

European Parliament Event on Human Rights in North Korea

PIIE Noted in the News and on the Web

Bloomberg TV
French Woes Seen as Risk to Europe Integration
While in London, Jacob Funk Kirkegaard discusses France's declining leadership role in Europe.

CCTV's Biz Asia America
Barbara Kotschwar Discusses Trade Agreements
Barbara Kotschwar explains the interests of the developing countries participating in the Trans-Pacific Partnership trade discussions.

NPR's Morning Edition
Instead of Snoozing in Savings, Let's Put $5,000 to Work
Jacob Funk Kirkegaard joins NPR's Uri Berliner to discuss how interest rates for savings accounts are not keeping up with inflation.

Preview of Our Next Issue

Policy Brief
Estimates of Fundamental Equilibrium Exchange Rates, May 2013
William R. Cline

Policy Brief
Preserving the Open Global Economic System: A Strategic Blueprint for China and the United States
Arvind Subramanian

In This Issue

Peter Praet Monetary Policy in the Context of Balance Sheet Adjustments

Peter Praet
Executive Board,
European Central Bank


Featured Book
Transatlantic Economic Challenges in an Era of Growing Multipolarity Transatlantic Economic Challenges in an Era of Growing Multipolarity

Jacob Kirkegaard
Nicolas Véron
Guntram B. Wolff, eds.

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