Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
September 9, 2013

"Washington's premier think tank on the global economy"
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FEATURED
 
  Op-ed
India's Unique Crisis

Devesh Kapur and Arvind Subramanian
Published in the Business Standard, New Delhi
   
  Arvind Subramanian Some aspects of the Indian crisis are unique when compared to previous historical experiences. This uniqueness has been missed by analysts and the crisis has been misdiagnosed. Is it any surprise that remedies administered have been less than appropriate? Unlike the old-fashioned balance of payments crises, India has had a flexible exchange regime. India is experiencing a withdrawal of private capital, but has not pegged its currency, avoiding the overvaluation problem. India is not experiencing a conventional cyclical slowdown, and its government's finances are not unsustainable. The combination of slowing growth, high deficits, high inflation, a weak external situation, and a plunging currency make this economic situation different. India needs to craft a policy mix of fiscal tightening by reducing expenditures and raising taxes, though such steps are admittedly politically difficult right now.

>> Read full op-ed

  Op-ed
India's Unique Crisis: A Short-Term Fix

Devesh Kapur and Arvind Subramanian
Published in the Business Standard, New Delhi
   
  What is the best course of action for the Indian economy? The Indian government has three short-term objectives: reversing the cyclical component of the growth slowdown, making some dent in the current account deficit, and preventing inflation from getting out of control. The government should pursue a policy mix that includes rupee depreciation to address the first two objectives and a tariff-based fiscal policy to dampen demand, which would help with the second and third objectives. A moderate tightening of monetary policy would also address the issue of inflation. These remedies will minimize the risks of a crisis before the upcoming elections and serve as a bridge to post-election reforms.

>> Read full op-ed
>> See also Rebuilding the Indian State

  Op-ed
Misconceptions About Fed's Bond Buying

Joseph E. Gagnon
Published in Bloomberg
   
  Joseph E. Gagnon To combat the recession that began in 2007, the Federal Reserve and some other central banks have been buying large amounts of long-term bonds. The novelty of this quantitative easing (QE) makes the policy especially prone to popular misconceptions. QE actually reduces our national debt, unlike ordinary spending programs. Studies show that QE has a large and long-lasting effect on bond yields, making it cheaper to buy a house or build a factory. QE has helped to keep markets liquid and healthy. By supporting economic recovery, QE reduces the risk of market panics and the threat that big financial institutions might fail. In the difficult conditions that prevailed after the crash, QE was the right policy, and it still is.

>> Read full op-ed

  Op-ed
Now the BRICs Party Is Over, They Must Wind Down the State's Role

Anders Åslund
Published in the Financial Times
   
  Anders Aslund Growth has fallen in the BRIC countries (Brazil, Russia, India, and China), and investors have turned their backs on them. Their long boom is finally over, and it is not likely to come back any time soon. The BRIC countries have been caught in hubris, state capitalism, and protectionism. They have neither invested properly nor improved their economic systems during good times. Their enchantment with Olympic Games and World Cups tells it all. Rather than sobering up, they seem to be heading further in the direction of state capitalism, partly because they misread developments in the mature economies and partly because of the strength of their state corporations.

>> Read full op-ed

  Op-ed
Germany Is Being Crushed by Its Export Obsession

Adam S. Posen
Published in the Financial Times
   
  Adam S. Posen Cheap labor has been the basis of Germany's export success in the last dozen years—and exports have been the sole consistent source of economic growth over the same period. This obsession with exports has distracted investors and policymakers from recapitalizing the country's banks, deregulating services, and thus encouraging a reallocation of capital from old industries. Dependence on external demand has led exporters to deprive German workers of growth and higher wages. If European trading partners pursue the same policy past initial post-bubble adjustment, it will only reinforce those pressures. Instead of suppressing wages, Germany should support research and development, capital investment, and education of its work force.

>> Read full op-ed

  Op-ed
The Swedish Model for Economic Recovery

C. Fred Bergsten
Published in the Washington Post
   
  C. Fred Bergsten Sweden presents a proven model for the types of reforms needed in much of Europe and many other parts of the world, including the United States. Because of its combined free-market economy and social welfare society—and a high degree of government efficiency—Sweden was able to escape the euro area crisis and quickly restore steady and stable growth. Other Scandinavian countries pursue similar policies and have enjoyed similar, if less dramatic, success. This subregion of stability demonstrates that, with the right policies, European countries can prosper inside the euro area or outside it. President Obama, who is visiting Sweden en route to the upcoming G-20 meeting in St. Petersburg, should convey and advocate this message of successful reform.

>> Read full op-ed

  Policy Brief 13-20
Role of Apprenticeships in Combating Youth Unemployment in Europe and the United States
[pdf]

Natalia Aivazova
   
  Natalia Aivazova Many of the world's advanced economies continue to struggle with sluggish growth and high unemployment, especially among younger workers. One reason for high unemployment in countries such as Greece, Portugal, and Spain is a mismatch between the skills demanded by employers and those available among the population. This mismatch can be addressed in part through the implementation of apprenticeship programs. Boosting apprenticeships could give both European and US workers much-needed skills and a competitive edge. Germany, Austria, and Switzerland, three countries with low youth unemployment, offer valuable policy lessons in apprenticeship education.

>> Read full policy brief [pdf]


Peterson Perspectives Interviews

audio  Emerging Market Turmoil on the Eve of the G-20: Part I
Arvind Subramanian explains why India, Brazil, and other emerging market economies feel they are the victims of US monetary policy switches.

audio  Emerging Market Turmoil on the Eve of the G-20: Part II
Arvind Subramanian says that India's problems are real and of its own making and that it must get control of inflation, deficits, corruption, and infrastructure problems.


Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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A Policy Agenda for India

Hollande Disappoints on Pension Reform

Another Round in the Battle Between Argentina and Its Holdout Creditors

Bye-Bye, Russian "Reset"

From Argentina to Grenada: Will Creditor Options Grow in Future Sovereign Debt Litigation?
  China's Local Government Debt: Saving for a Rainy Day

Rebalancing China's Railway Sector

Measuring Excess Credit Growth in China

Ignore the Noise: Why Chinese Household Consumption is Still Too Low

China Rebalancing Update—Q2 2013
  Further Insights into the Mental Health of Female Refugees

Swiftian proposal contest winner: hooch for pooch!

Lifestyles of the rich and famous

The Lee Seok-ki Case

Where have the prisoners gone?


PIIE Noted in the News and on the Web

CCTV's Biz Asia America
Putin to 'Divide BRICs and the West' at G-20 Summit
Anders Åslund discusses Russia's economy and its performance as host for this year's G-20 Summit.

NHK World
Focus on Growth
Douglas A. Rediker explains why currency issues and the growth slowdown in emerging markets will be an agenda item at the G-20 Leaders' Summit.

CCTV's Biz Asia America
As Europe Recovers, Which Countries Are Leading the Rebound?
Jacob Funk Kirkegaard explains to CCTV's Phillip Yin why Europe's unemployment levels remain high.

BBC World Service
Falling BRICs
Arvind Subramanian discusses what is propelling economic decline in emerging markets.

CCTV's Biz Asia America
With Future of Rupee Uncertain, Indians Fear Economic Disaster
Arvind Subramanian explains what has been causing India's sharp economic slowdown.
 
 
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Featured Book
Title Resolving the European Debt Crisis
William R. Cline
Guntram B. Wolff
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