Peterson Institute Update

Be Warned George Osborne: More Home Owners Just Really Means Higher Unemployment

Unemployment is a major source of unhappiness and mental ill-health.

Yet after a century of economic research, the determinants of unemployment are still imperfectly understood, and unemployment levels in the industrialized nations are around 10 percent, with some over 20 percent.

Op-ed by David G. Blanchflower.

Effects of the Euro Crisis on Reserve Currency Holdings

The International Monetary Fund (IMF) released the latest update of its data on the Currency Composition of Official Foreign Exchange Reserves (COFER) at the end of March, with data through the end of 2012.

RealTime post by Allie E. Bagnall.

The Rise of Emerging Asia: Regional Peace and Global Security [pdf]

The rapid economic rise of China, India, and the Association of Southeast Asian Nations (ASEAN) could have several effects on regional peace and global security. The power transition perspective overstates the risk of conflict that results from convergence between dominant and challenger states. Rapid changes in economic and military capabilities can, however, have negative consequences for regional peace. Three features of the international environment—democratization, economic interdependence, and international institutions—provide weak insurance, at best, against conflict in Asia. Emerging Asian powers may also challenge existing global security regimes, a more indirect threat to global peace. The continuing contribution of Asia to global peace and security will require measures that will be difficult for newly empowered actors competing for status and influence.

Working Paper by Miles Kahler.

Is France a 'Peripheral' Country?

A few weeks ago Reuters reported that the French finance Minister, Pierre Moscovici, fell asleep during the final late night negotiations over the Cypriot bank bailout on March 24. It apparently fell to the International Monetary Fund (IMF) managing director, Christine Lagarde--a former French finance minister herself--to wake him up. No doubt the grueling round-the-clock schedule of the Cyprus negotiations would have taxed the most vigorous participant, but that should not stop speculation about the meaning of what happened.

RealTime post by Jacob Funk Kirkegaard.

Interview: Can Azevedo Rescue the WTO? Part II

Gary Clyde Hufbauer says countries that don't want to be left behind by a transpacific or transatlantic trade accord may spur global trade talks.

Interview: Can Azevedo Rescue the WTO? Part I

Gary Clyde Hufbauer assesses the prospects for reviving global trade talks with the installation of the new WTO director-general Roberto Carvalho de Azevedo.

Sovereign Damage Control [pdf]

Italy changed its debt contracts, Belize passed new debt legislation, and Taiwan sued Grenada this year, all in response to a string of court rulings in New York that tried to make Argentina pay its debts from its financial crisis in 2001. The court rulings have gone to unprecedented lengths to isolate Argentina but are unlikely to make the country pay. The rulings, however, do threaten collateral damage to other countries and parts of the financial system. The lawsuit—NML Capital Ltd. et al. v. Republic of Argentina—promises to shift the balance of power from sovereign debtors to their creditors. The shift would come courtesy of one obscure debt contract term, the pari passu clause, that has gained destructive power in a case where the government and its creditors are uniquely willing to test the limits of the law. The impact may be magnified because of possible effects on the public debt distress in Europe, new emerging-market restructurings, and the recent regulatory focus on clearing and payment systems.

Policy Brief 13-12 by Anna Gelpern.

Does High Home-Ownership Impair the Labor Market? [pdf]

The authors explore the hypothesis that high home-ownership damages the labor market. The results are relevant to, and may be worrying for, a range of policymakers and researchers. The authors find that rises in the home-ownership rate in a US state are a precursor to eventual sharp rises in unemployment in that state. The elasticity exceeds unity: A doubling of the rate of home-ownership in a US state is followed in the long-run by more than a doubling of the later unemployment rate. What mechanism might explain this? The authors show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. The argument is not that owners themselves are disproportionately unemployed. Evidence suggests, instead, that the housing market can produce negative 'externalities' upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.

Working Paper 13-3 by David G. Blanchflower and Andrew J. Oswald.

Interview: A Korea-US Summit: Tensions and Opportunities: Part II

Marcus Noland explains why South Korean President Park is an inspirational and divisive figure at home, but that US-Korea economic ties are healthy now.

Interview: A Korea-US Summit: Tensions and Opportunities: Part I

Marcus Noland outlines the agenda for Presidents Obama and Park on nuclear issues and dangers posed by North Korea.

Four Changes to Trade Rules to Facilitate Climate Change Action

The research on the links between trade rules and climate-change action has mostly been concerned with how far climate-change action is constrained by current trade rules pertaining, for example, to border-tax adjustments (Horn and Mavroidis 2011), subsidies (Green 2006), and exports of natural gas (Levi 2012 and Hufbauer et al. 2013).

The research reflects—in part—the assumption that climate-change action (e.g., carbon-price increases) can be taken as a given. But our approach and proposals are predicated on:

The current reality that action on climate change is proving fiendishly difficult.
The assumption that only radical technological progress can reconcile climate-change goals with the development and energy aspirations of humanity (Mattoo and Subramanian 2012).

Op-ed by Aaditya Mattoo and Arvind Subramanian.

Dealing with Cybersecurity Threats Posed by Globalized Information Technology Suppliers [pdf]

Theodore H. Moran cites recent instances of the US government intervening to block foreign producers of information technology (IT) from selling goods and services to US firms and argues that such actions based on the nationality of the foreign firm is ineffective, discriminatory, and unfair. The dangers and risks of compromise of US national security are real. But in a world where supply chains of IT companies of every nationality are thoroughly globalized, a better way to protect national security would be to establish a multilateral nondiscriminatory system to ensure the integrity of equipment, software, patches, and upgrades from all sources. Much remains to be done to establish an appropriate regime to protect national security and also the rights of investors and companies doing business with foreign firms. The goal should be to strike a balance between protecting national security without discouraging foreigners from investing in and doing business with US firms.

Policy Brief by Theodore H. Moran.

Event: Evaluating Progress in Regulatory Reforms to Promote Financial Stability

Federal Reserve Governor Daniel Tarullo delivered a speech on "Evaluating Progress in Regulatory Reforms to Promote Financial Stability" on May 3, 2013. Tarullo examined the issues and difficulties surrounding implementation of reforms of bank capitalization and leverage enacted since 2008 and assessed the lingering vulnerabilities of the current regulatory system to financial shocks.

Video and audio of the event are available online.

Southern Europe's Problem: Poor Education

A little noticed fact about the economic turmoil in southern Europe is that Portugal and Italy, two of the countries struggling the most, had minimal growth even during the seven good pre-crisis years of 2001–07. The most overlooked common problem of the four Southern European countries—Portugal, Spain, Italy, and Greece—is that they are all hampered by little education and the poor quality of the education system.

RealTime post by Anders Åslund.

The Fiscal Lessons from the Baltic States Must Not Be Ignored

Europe remains divided, but its division no longer runs between East and West—it is now between North and South. Northern Europe thrives economically, while most of Southern Europe is in financial crisis.

Op-ed by Anders Åslund.