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Discussion Paper
Will the U.S. Dollar Continue to Dominate World Trade?
There are around 180 currencies in the world, but only a very small number of them play an outsized role in international trade, finance, and central bank foreign exchange reserves. In the modern era, the U.S. dollar has a dominant international presence, followed to a lesser extent by the euro and a handful of other currencies. Although the use of specific currencies is remarkably stable over time, with the status of dominant currencies remaining unchanged over decades, there have been decisive shifts in the international monetary system over long horizons. For example, the British pound ...
Working Paper
Current Account Dynamics and Monetary Policy
We explore the implications of current account adjustment for monetary policy within a simple two country DSGE model. Our framework nests Obstfeld and Rogoff's (2005) static model of exchange rate responsiveness to current account reversals. It extends this approach by endogenizing the dynamic adjustment path and by incorporating production and nominal price rigidities in order to study the role of monetary policy. We consider two different adjustment scenarios. The first is a "slow burn"where the adjustment of the current account deficit of the home country is smooth and slow. The second is ...
Discussion Paper
Japan’s Experience with Yield Curve Control
In September 2016, the Bank of Japan (BoJ) changed its policy framework to target the yield on ten-year government bonds at “around zero percent,” close to the prevailing rate at the time. The new framework was announced as a modification of the Bank's earlier policy of rapid monetary base expansion via large-scale asset purchases—a policy that market participants increasingly regarded as unsustainable. While the BoJ announced that the rapid pace of government bond purchases would not change, it turned out that the yield target approach allowed for a dramatic scaling back in purchases. ...
Discussion Paper
Do Economic Crises in Europe Affect the U.S.? Some Lessons from the Past Three Decades
In this post we summarize the main results of our contribution to a recent e-book, “The Making of the European Monetary Union: 30 years since the ERM crisis,” on the economic and financial crises in Europe since 1992-93, and focus on the spillovers of those crises onto the United States and the global economy. We find that the answer to the question in the title of this post is a (moderate) yes.
Discussion Paper
A Closer Look at Chinese Overseas Lending
While considerable attention has focused on China’s credit boom and the rise of China’s domestic debt levels, another important development in international finance has been growth in China’s lending abroad. In this post, we summarize what is known about the size and scope of China’s external lending, discuss the incentives that drove this lending, and consider some of the challenges these exposures pose for Chinese lenders and foreign borrowers.
Discussion Paper
Is China Running Out of Policy Space to Navigate Future Economic Challenges?
After making progress slowing the pace of debt accumulation prior to the pandemic, China saw its debt levels surge in 2020 as the government responded to the severe economic slowdown with credit-led stimulus. With China currently in the midst of another sharp decline in economic activity due to its property slump and zero-COVID strategy, Chinese authorities have responded again by pushing out credit to soften the downturn despite already high levels of debt on corporate, household, and government balance sheets. In this post, we revisit China’s debt buildup and consider the growing ...
Working Paper
Rethinking Detroit
We study the urban structure of the City of Detroit. Following many decades of decline, the city?s current urban structure is clearly not optimal for its size, with a business district immediately surrounded by a ring of largely vacant neighborhoods. We propose a model with residential externalities that features multiple equilibria at the neighborhood level. In particular, developing a residential area requires the coordination of developers and residents, without which it may remain vacant even if its fundamentals are sound. We embed this mechanism in a quantitative spatial economics model ...
Journal Article
Global Supply Chain Disruptions Can Be Seen Anywhere, but Their Costs Are Not the Same Everywhere
Although ubiquitous, supply chain challenges are exerting more cost pressures on the types of businessesconcentrated in the Tenth Federal Reserve District. Businesses in the region are less willing or able to adjustthe amount of imported goods they purchase even when procurement prices rise precipitously, as they have over the past year.
Discussion Paper
Can Electric Cars Power China’s Growth?
China’s aggressive policies to develop its battery-powered electric vehicle (BEV) industry have been successful in making the country the dominant producer of these vehicles worldwide. Going forward, BEVs will likely claim a growing share of global motor vehicle sales, helped along by subsides and mandates implemented in the United States, Europe, and elsewhere. Nevertheless, China’s success in selling BEVs may not contribute much to its GDP growth, owing both to the maturity of its motor vehicle sector and the strong tendency for countries to protect this high-profile industry.
Discussion Paper
A New Barometer of Global Supply Chain Pressures
Supply chain disruptions have become a major challenge for the global economy since the start of the COVID-19 pandemic. Factory shutdowns (particularly in Asia) and widespread lockdowns and mobility restrictions have resulted in disruptions across logistics networks, increases in shipping costs, and longer delivery times. Several measures have been used to gauge these disruptions, although those measures tend to focus on selected dimensions of global supply chains. In this post, we propose a new gauge, the Global Supply Chain Pressure Index (GSCPI), which integrates a number of commonly used ...