Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
January 29, 2014

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  New Book
Fueling Up: The Economic Implications of America's Oil and Gas Boom

Trevor Houser and Shashank Mohan
  Fueling Up: The Economic Implications of America's Oil and Gas Boom New drilling techniques for oil and natural gas are propelling an energy production renaissance in the United States. As the US economy emerges from the Great Recession, some see the boom as a possible source of reduced unemployment and revitalization of American manufacturing. Until now, however, there has been little objective analysis of the energy boom's economic consequences. In this major study, Trevor Houser and Shashank Mohan assess the impact of the recent and projected increase in domestic energy production on US GDP, employment growth, manufacturing competitiveness, household expenditures, and international trade balance. Alongside its economic impact, the authors address relevant environmental and trade policy questions: What are the consequences for the environment and global warming of increased domestic oil and gas production? Should companies be allowed to export the energy they produce or will doing so undermine American competitiveness?

>> Preview and purchase book online

  Policy Brief 14-4
Monetary Policy with Abundant Liquidity: A New Operating Framework for the Federal Reserve

Joseph E. Gagnon and Brian Sack
  Joseph E. Gagnon The amount of assets held by the Federal Reserve has dramatically increased since 2009. It recently exceeded $4 trillion and will likely peak at about $4.5 trillion. This increase is the result of the Federal Reserve's large-scale asset purchase programs, which were intended to support economic growth. These purchases also have created unprecedented amounts of liquidity in the financial system. Gagnon and Sack doubt that the Fed can smoothly conduct monetary policy along the lines of the previous operating framework in this environment of high liquidity. Instead of reducing bank reserves to achieve a target level for the federal funds rate, they propose a new operating framework that would allow the Fed to maintain an elevated balance sheet along with abundant liquidity in the financial system. They argue that the Fed should set the rate at which it will offer overnight reverse repurchase agreements as its policy instrument, with the interest rate paid on bank reserves set at the same level.

>> Read full policy brief [pdf]

  Policy Brief 14-3
Income Inequality Developments in the Great Recession

Tomas Hellebrandt
  Tomas Hellabrandt The Great Recession—which cost tens of millions of people their jobs, was accompanied by large movements in asset values, and threatened the global financial system—has strengthened concerns over the fairness of the distribution of wealth and income in many societies. Using data on eight advanced economies (Germany, Greece, Ireland, Italy, Slovakia, Spain, the United Kingdom, and the United States) between 2007 and 2010, Tomas Hellebrandt shows how the Great Recession affected income inequality in different countries and how families and the state tried to mitigate its impact—primarily through redistributing income within households and through benefit and tax policies. The social safety net and changes in direct taxes have counteracted the increase in income disparities. This Policy Brief argues that increasing direct taxes can contribute to reducing inequality, while tax cuts tend to make the distribution of disposable incomes more unequal. In addition, means-tested social assistance benefits mitigate inequality better than work-related social insurance programs.

>> Read full policy brief [pdf]

The Impact of the Volcker Rule on Job Creators

Simon Johnson
  Simon Johnson The Volcker Rule of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which is aimed at preventing large financial institutions from certain kinds of investments for their own benefit, is based on several sound principles. Very large banks in the United States are perceived as "too big to fail," because failure would cause such massive damage that the government and the Federal Reserve are compelled to step in and rescue them to protect the rest of the economy. The Volcker Rule by itself does not end all the problems associated with "too big to fail" financial firms. However, it is a helpful way to reduce the risks to taxpayers and to the broader economy, as well as to level the playing field within the financial sector. The negative impact predicted by many financial industry leaders has not materialized, but a number of adjustments are recommended here to make the rule more flexible and fair.

>> Read full testimony [pdf]

Russia Is Losing Sources of Economic Growth

Anders Åslund
Published in the Moscow Times
  Anders Aslund The annual Gaidar Forum in Moscow was revealing about the Russian economic and political situation. The economist Vladimir Mau said that Russia's economy and politics are marked by what optimists call stability and what pessimists call stagnation. Prime Minister Dmitry Medvedev claimed that Russia's economic growth sources have been exhausted, while emphasizing that the causes of that exhaustion were primarily domestic in nature. Many experts conclude that Russia risks losing out to more advanced economies and that it needs to improve the quality of its labor, management, health care, pension system and, most of all, its institutions.

>> Read full op-ed

An Indian Trade Paradox

Arvind Subramanian
Published in the Business Standard, New Delhi
  Arvind Subramanian Is India an open or closed economy? The answer is not clear. While tariffs have been reduced and have almost converged with tariffs in the rest of the world, other trade barriers remain very high. Barriers in services are among the highest in the world, resulting in an overall trade regime that is quite protectionist. But the picture of India changes quite dramatically when the country's trade regime is judged in terms of trade outcomes. India's trade-to-GDP ratio has doubled over the course of a decade from about 25 to 53 percent in 2012. The surge in India's openness coincides with the period of rapid growth in the 2000s. For its size, India trades more than the typical country does.

>> Read full op-ed

India: Taxation's Fatal Neglect?

Devesh Kapur and Arvind Subramanian
Published in the Business Standard, New Delhi
  India's public conversation about its government finances has become one-sided. It is all about spending. For the United Progressive Alliance (UPA) government, of course, elevated spending, subsidies, and redistribution were sacred objectives. But the sobering fact is that in the next election, the three main choices are more of the same (mixed with promises of less corruption), more economic nationalism or possible market-based reforms. This obsession with spending has crowded out discussions on revenues and taxation and misses a central element: If spending is about the entitlements of citizenship, taxation is its necessary twin: the obligations of citizenship.

>> Read full op-ed

Peterson Perspectives Interviews

audio  Turmoil in Ukraine, Reverberations in Russia
Anders Åslund says that Ukraine's instability is causing alarm in Moscow, where any decision to intervene could spoil the Sochi Olympics.

audio  The IMF Gets Shut Out Again in Washington
Douglas A. Rediker says the failure of the Obama administration to win Congressional approval of funding and governance legislation for the International Monetary Fund is a blow to US credibility around the world.

Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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The IMF Is Courting New Risks with a Change in Policy on Debt Restructuring

How Lowering Youth Unemployment Leads to Consumption Growth

Poverty and Inequality

A Dark Day for International Cooperation

Why the European Central Bank Will Likely Shrink from Quantitative Easing
  China Maintains its Allure for Foreign Firms

China Rebalancing Update – Q4 2013

Best House in a Bad Neighborhood: China's Holdings of US Assets

State-Owned Enterprise Reform: the Long Wait for a Chinese Temasek Continues...

The Unrelenting Weight of Waiting: China's Reserve Accumulation in 2013 and Outlook for 2014
  STTB: "The past is never dead. It's not even past."

Appropriations on North Korea (Corrected)

Masik Pass Open for (Foreign) Business

Glimpses: Aram Pan's DPRK 360 Project

The Alliance Burden Sharing Agreement
In This Issue

Michael Somer The German Case of Competitiveness with High Wages

Michael Sommer, head of the German Trade Union Federation and of the International Trade Union Confederation, discusses labor and business cooperation in Germany and what to expect from Germany's new minimum wage.


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