Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
June 7, 2013

"Washington's premier think tank on the global economy"
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  Policy Brief 13-16
Preserving the Open Global Economic System: A Strategic Blueprint for China and the United States

Arvind Subramanian

Arvind Subramanian's presentation of this Policy Brief will be webcast live. Kurt Campbell and Joseph Nye will discuss the proposal.

June 11, 2013
12:30–2:00 p.m. (EDT)
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Arvind Subramanian When the new Chinese leader, Xi Jinping, meets with President Barack Obama this month, they will have a lot to talk about. In the economic sphere, their challenge is to preserve the open, rules-based multilateral economic system at a time when China, as the rising power, might be unwilling to do so, and the United States, as the declining power, is increasingly unable to lead on its own. The two nations must overcome their mutual wariness and strike a bargain: The United States should give up power in multilateral institutions in return for China taking on greater leadership to preserve the system's real purpose.

>> Read full Policy Brief [pdf]
>> See live webcast info for the release event for this Policy Brief

  Policy Brief 13-15
Estimates of Fundamental Equilibrium Exchange Rates, May 2013

William R. Cline
FEERs Interactive Map
Use the interactive FEERs map to see currency undervaluation and overvaluation, in terms of both multilateral and bilateral exchange rates, over time across the globe.
William R. Cline In this semiannual update, William R. Cline presents new estimates of fundamental equilibrium exchange rates (FEERs). Once again the United States and Chinese currencies are found to be only modestly over- and undervalued, respectively. The Japanese yen has fallen below its FEER since the launch of its quantitative easing policy. Cline suggests that if the yen declines much further, the G-7 nations may need to jointly intervene. The study adds a variant of the calculations in which rich countries set a target floor of at least a zero current account balance, and emerging market economies set a target ceiling of zero balance. In this "aggressive rebalancing scenario," in which capital would no longer flow on net from poor to rich countries, the US dollar would require a larger depreciation and the Chinese renminbi a larger appreciation.

>> Read full Policy Brief [pdf]

  Congressional Testimony
The Fiscal and Economic Effects of Austerity

Simon Johnson
  Simon Johnson Continuing uncertainty around the US federal budget and the debt ceiling is unhelpful and may destabilize the US and global economies. Another confrontation over the debt ceiling or a further tightening of US fiscal policy could impede growth or employment. There is no meaningful evidence that the United States needs to cut federal deficits dramatically this year or over the next five years. There is no simple threshold for US federal debt, either gross or net, that would trigger slower growth or higher bond yields. Instead there is a danger to the United States of unnecessary and damaging fiscal austerity. The United States should therefore adopt policies to build an economy within which federal revenue can grow, while public spending growth is contained over the next decade.

>> Read full testimony [pdf]

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PIIE Noted in the News and on the Web

Bloomberg TV
Posen Says Carney Won't Have Tools for Weaker Pound
Adam S. Posen joins Bloomberg TV in Tokyo to discuss Japanese bond markets, the Bank of England, and the US Federal Reserve.

NPR's Morning Edition
Mired In Recession, EU Eases Some Austerity Measures
Adam S. Posen and Jacob Funk Kirkegaard speak with NPR's John Ydstie about how Europe's austerity programs have curbed growth and sent unemployment soaring in the euro area.

Foreign Policy Magazine
The China Conundrum [subscription required]
Clyde Prestowitz discusses how some experts, including C. Fred Bergsten in his Stavros Niarchos Foundation lecture, have recently questioned the fundamental assumptions that guide US policy on China.

Bloomberg TV
Simon Johnson on Japanese Growth, Global Economy
Simon Johnson discusses the economic challenges facing Japan and his recent testimony before the US Senate Budget Committee.

Preview of Our Next Issue

The Great Powers' Relationship Hinges on the Pacific
Robert B. Zoellick

Working Paper
Peers and Tiers and US High-Tech Export Controls: A New Approach to Estimating Export Shortfalls
Asha Sundaram and J. David Richardson

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