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This symposium features three papers that investigate various aspects of government spending. The papers also share common ground in the considerable attention paid by each to international issues. Beyond that, the papers are quite different. They vary considerably in the mix of theory and empirical evidence as well as in the specific aspects of government spending that are investigated. The paper by Darrel Cohen utilizes techniques from the spectral analysis of time series to characterize seasonal, cyclical, and long-run properties of various measures of U.S. government spending; in addition, spectral techniques are combined with an intertemporal optimizing model of a representative consumer to shed light on the issues of the degree of direct substitution between government and private consumption spending in each of twelve major economies. The paper by Louise Sheiner uses cross-country data to address the question of whether conventional projections of a country's future health care expenditures are based on a faulty assumption that relative health spending by age remains constant. This paper is quite topical given impending demographic changes and related projected impacts on government outlays on health and retirement programs in many countries. The paper by Michele Cavallo develops a theoretical model and utilizes a calibration exercise to examine the effects on the current account balance of changes to different types of government spending, in particular expenditures on goods and expenditures on hours worked. [ABSTRACT FROM AUTHOR]

The article comments on the underlying theory and the conclusions on economic policy derived from the proposals by Professor Ragnar Frisch for a thorough study of balance of payments broken down by countries and currencies. Several countries, short of foreign exchange, balance their imports by state control at the amount available from exports and other sources; any increase in exports enables them to import more, any decrease in exports forces them to import less. In the U.S., on the other hand, the volume of imports is determined by private importers independently of the reserve position of the country; the total volume of imports is below the level determined by national income and relative prices, and no change of exports would influence the actual volume of imports. In these conditions, discrimination against imports from the U.S. will increase world trade.

The aim of this paper is to examine the 'dark matter' assets in the external sector of the United States in the period 1999:Q1-2018:Q3. The paper investigates data on the balance of payments and international investment position for the US and a group of 18 economies. The research reveals that the US is a privileged economy with respect to foreign income on international investments. The rates of return on its foreign assets are relatively higher, and the costs incurred on its foreign liabilities relatively lower, as compared with the benchmark group. This special privilege of the US relates to equity investments, especially foreign direct investments. Based on prevailing income differentials substantial 'dark matter' assets of the US are estimated. Recognising such 'dark matter' leads to the conclusion that the US is a foreign creditor, not debtor. The findings shed light on the puzzle as to why the US has a continuing ability to sustain its external position despite mounting foreign liabilities. [ABSTRACT FROM AUTHOR]

The common theme running through the three papers prepared for this session is the nature and effectiveness of the international balance-of-payments adjustment process. Klein projects the effect of exchange-rate changes on national balance-of-payments positions. Kenen assumes fixed exchange rates and simulates the effects on the U.S. balance of payments of changes in U.S. monetary and fiscal policy. Adler and Stevens analyze the relationship between foreign direct investment by U.S. firms and U.S. exports, and then use their model to simulate the effect of several kinds of policy measures (exchange-rate, tariff and tax-rate changes) on that key aspect of the adjustment process. [ABSTRACT FROM AUTHOR]

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This paper surveys the academic and policy debate on the origins of global imbalances, their prospects after the global crisis, and their policy implications. A conventional view of global imbalances considers them to primarily result from macroeconomic policies and cyclical forces that cause demand for goods to outstrip supply in the United States and other rich countries and that have the opposite effect in major emerging markets. An alternative view holds that global imbalances are the result of structural distortions and slow-changing factors that primarily affect assets markets. This paper reviews the analytical underpinnings of these two perspectives and the empirical evidence of their respective merits. The paper then assesses the outlook for global imbalances after the crisis, particularly in terms of policy action to reduce their magnitude. Policy intervention is warranted to the extent that the imbalances are driven by welfare-reducing distortions, but in this case, the primary target of policy intervention should be the distortions rather than the imbalances. Finally, the paper examines various forms of international spillovers that may call for multilateral action to limit global imbalances. [ABSTRACT FROM AUTHOR]

In this paper, we analyze the spillovers of uncertainty from the United States (US) on Gross Domestic Product (GDP) in a large panel of 50 advanced and emerging economies. We allow the response of GDP in each country to vary according to its exchange rate regime, trade openness, and a vulnerability index (based on current account, foreign reserves, inflation, and external debt). We observe large heterogeneity in the response of advanced and emerging economies to uncertainty surprises of the US. In response to an increase in US uncertainty, GDP in foreign economies drops slightly more, as it does in the US. In addition we find that, for advanced economies the exchange rate regime and financial vulnerability account for a large portion of the contraction in activity. In emerging economies, however, the responses do not depend on the exchange rate regime, but are larger when trade openness is high and weakness in the financial system is high. [ABSTRACT FROM AUTHOR]

This section introduces the articles which appeared in the March 1972 issue of the "Brookings Papers on Economic Activity." In the first article, William Branson estimates that the 1971 currency re-alignment, when fully effective, will bolster the United States merchandise trade balance by $7 billion to $8 billion a year. The effect of the devaluation of the U.S. dollar on the trade balance depends on how much it raises the dollar prices of U.S. imports, how much it lowers the prices of U.S. exports in terms of the currencies of buyers, and how responsive both buyers and sellers are to price changes -- that is, how large their price elasticities are. As Branson views the process, exporters set the price tags on tradeable goods in terms of their own currency. The paper by F. Thomas Juster and Paul Wachtel examines the effects of inflation and of transitory changes in income on consumer saving and spending behavior, with particular reference to the inflationary experience of recent years. The authors seek to explain consumer demand in several different ways, relying on both subjective data drawn from surveys of households and objective economic variables such as income, relative prices, and the rates of unemployment and of inflation. In the third article, Arthur Okun reaffirms analytically the desirability of an activist fiscal-monetary strategy. Like other Keynesian economists, Okun believes that fiscal and monetary policy should be shifted toward stimulus or restraint in light of observed and predicted economic fluctuations.

This paper examines the recent history of the U.S. current and capital accounts, models some likely paths for them in the years ahead, and examines historical episodes of sustained deficits and growing foreign indebtedness in other countries for clues to how serious a risk the present U.S. situation entails. This paper also analyzes the relationship between the dollar and the U.S. current account, with particular attention to the issue of sustainability and the mechanics of current account adjustment. The author develops a portfolio model of the current account and shows that, even under a very positive scenario where foreigners' demand for U.S. assets doubles from its current level, the U.S. current account will have to go through a significant adjustment in the not-too-distant future. Indeed, one cannot rule out a scenario where the U.S. current account deficit shrinks abruptly by 3 to 6 percent of GDP. To get an idea of the possible consequences of such an adjustment, the author also analyzes the international historical evidence on current account reversals. The results of this empirical investigation indicate that significant current account reversals have tended to result in large declines in GDP growth.

This paper focuses on the growing U.S. current account deficit and the potentially sharp exchange rate movements any future adjustment toward current account balance might imply. The authors argue that the speed at which the U.S. current account ultimately returns toward balance, the triggers that drive that adjustment, and the way in which the burden of adjustment is allocated across Europe and Asia all have enormous implications for global exchange rates. This paper begins by trying to put the recent U.S. experience with current account imbalances in historical perspective. The authors then provide a nontechnical summary of the authors' core three-region model. The paper's final section highlights the main conclusions that the authors draw from the technical analysis.

South Africa is one of the emerging market countries that have received a relatively large amount of foreign capital since the mid-2000s. In South Africa's case, these inflows were partly used to build the country's foreign exchange reserves, but more particularly to finance continued large current account deficits. During the course of the past two years, however, adverse domestic political developments, combined with the potential negative impacts of the unwinding of quantitative easing policies and the normalising of monetary policy in the United States on emerging markets in general, has raised the spectre of a sharp slowdown in foreign capital flows to South Africa and an associated reversal of the current deficit. This paper explores the potential impact of such a development on macroeconomic conditions in South Africa. The analysis consists of macroeconometric model-based alternative scenarios backed up by both the international evidence on the impact of such events and South Africa's own history. [ABSTRACT FROM AUTHOR]

From the 1970s, the global currency system has two features: the use of one or a few sovereign currencies as the global reserve asset and the floating exchange rate regime between major currencies. This paper points out that the costs of the dollar's use as an international reserve currency exceed the benefits for both the US and the rest of the world. These costs include the exporting of American manufacturing as a byproduct of its current account deficit needed to supply its currency to the rest of the world. In addition to the detriment to trade from unpredictable exchange rate fluctuations, the termination of the U.S. obligation to redeem its currency for gold also removed an important restraint on deficit financing for the US and many other countries in the short-run, thus promoting excessive leverage that was a major contributor to the 2008 financial crisis. The paper suggests replacing several main countries' currencies in international reserves with a real Special Drawing Right (SDR) issued according to currency board rules. [ABSTRACT FROM AUTHOR]

Purpose: Accounting standards for goodwill may intensify the agency conflict. Since auditors evaluate intangible asset valuations, this study examines to what extent being an auditor (including Big 4 auditors) and being female as indicators of professional skepticism and conservatism predict accounting professionals' critical views of goodwill accounting under US GAAP. Design/methodology/approach: Statistical analyses of a survey of accounting professionals in the Pacific Northwest region of the United States. Findings: The respondents' views are dispersed from trust in GAAP to views reflecting management opportunism in goodwill accounting. While being an auditor (including Big 4 auditors) does not predict a critical perception, being a female auditor is correlated with critical views to some extent. Research limitations/implications: The survey was carried out in a limited geographical area and personal contacts were used to maximize the response rate, which may limit generalizability. Practical implications: Standard setters can use the results to learn how practitioners perceive the current accounting standards for goodwill. The results provide users and preparers knowledge about potential pitfalls of goodwill accounting. Preparers could increase transparency to alleviate user concerns regarding managerial opportunism in goodwill accounting. Originality/value: This paper extends the IFRS-based literature exploring practitioners' perceptions of accounting standards by focusing on goodwill accounting in the US GAAP environment. This study also contributes to the auditing literature by providing further evidence on how gender moderates an auditor's perception of accounting standards. [ABSTRACT FROM AUTHOR]

This paper examines the global distribution of current accounts. Using a panel of more than 100 countries, the analysis establishes a set of stylized facts regarding the collective behavior of current accounts over the past four decades. In particular, we find that the global dispersion of current accounts has been steadily rising, which is qualitatively consistent with the view that ongoing financial globalization has allowed countries to maintain larger current account imbalances. However, this underlying trend is not quantitatively large enough to explain “global imbalances”—that is, the noticeable widening in external imbalances among major economies (for example, United States) seen in recent years.IMF Staff Papers (2009) 56, 574–595. doi:10.1057/imfsp.2009.12 [ABSTRACT FROM AUTHOR]

The paper discusses the interactions of changes in income distribution and the accumulation dynamics in the post-Fordist accumulation regime in OECD countries, which is characterized by deregulated financial markets. The neoliberal mode of regulation came with a decisive shift in power relations at the expense of labor, which is clearly reflected in the fall of wage shares across OECD economies. The notion of a "finance-dominated" accumulation regime is proposed to highlight that financial developments crucially shape the pattern and the pace of accumulation. Financial globalization has relaxed balance of payment constraints and thereby allowed the build up of big international imbalances. The combination of real wage moderation and financial liberalization has led to different strategies (or at least outcomes) in different countries. While some countries (like the USA) exhibit a credit-fuelled consumption-driven growth model that comes with large current account deficits, others (like Germany and Japan) show an export-driven growth model with modest consumption growth and large current account surpluses. Overall the financedominated accumulation regime is characterized by a mediocre growth performance and by a high degree of fragility. [ABSTRACT FROM AUTHOR]

Objective: This study investigates the issue of global imbalances by exploring, in a historical context, the interconnections between the United States current account imbalances and the processes underlying allocative inefficiency, financialisation and austerity politics. Research Design & Methods: A comprehensive review of published studies is the research methodology used in this article. Published secondary data from both governments and international institutions are presented and discussed. Findings: The study find that the deep nature of the current imbalances and economic crisis in the United States could adversely affect the rest of the world. Although the IMF and other institutions of global governance have now questioned the effectiveness of neoliberal policies, the severe measures the IMF advocates in response to current account deficits could presage yet another era of anti-growth austerity measures in the United States. Implications/Recommendations: There are features of the current account US imbalances situation that have the potential to exacerbate negative trends and to further fuel adverse economic and political outcomes. The study suggests that a coordinated, US-led international response to a future global recession could be even more deficient than the current response to climate change. Contribution: The paper makes a contribution to the literature on the failures of global governance and critically examines the economic risks of the current situation that are being compounded by the political approach of the Trump Administration, which characterises US trade partners as adversaries in need of coercion through tariffs and strident rhetoric. [ABSTRACT FROM AUTHOR]

Most macroeconomic models imply that faster income growth tends either to lower a country’s trade balance by raising its imports with little change to its exports or to reduce its terms of trade in order to maintain balanced trade. Krugman (1989 ) proposed a model in which countries grow by producing new varieties of goods. In his model, faster-growing countries are able to export these new goods and maintain balanced trade without suffering any deterioration in their terms of trade. This paper analyzes the growth of US imports from different source countries and finds strong support for Krugman’s model. [ABSTRACT FROM AUTHOR]

This paper investigates the international dimension of economic fluctuations and transmission of structural shocks by estimating a structural VAR model for the United States, the euro area, and Japan—the three largest economies—over the post-Bretton Woods period. The main findings are as follows: (1) Supply-side shocks (technology and supply-level shocks) explain most of the fluctuations in cross-country output deviations. (2) Real-demand shocks are the most important source of real-exchange-rate fluctuations. (3) Current account is usually influenced by all types of shocks, with technology shocks playing a stronger role. In particular, technology shocks play a prominent role in the existing global imbalance (the large external deficit of the United States). (4) Technology and supply-level shocks generate opposite-signed correlations between output differential and current account, whereas real and nominal-demand shocks generate opposite-signed correlations between real exchange rate and current account. [ABSTRACT FROM AUTHOR]

This article discusses the proposition of Jeffrey Sachs that current account imbalances should be allocated among countries according to their national investment opportunities relative to availability of national savings. Sachs' analysis and empirical results put heavy weight on swings in national investment as the principal determinant of current account positions because he finds that savings rates in practice are relatively stable. According to Stanley Fischer, the paper accomplishes two main objectives. First, it provides a useful framework for analysis of the longer-term balance of payments and the exchange rate. Second, it makes the empirical judgment that the prime force determining movements in non-Organization of Petroleum-Exporting Countries current accounts and the exchange rate in the 1970s was a shift in the pattern of international investment. Meanwhile, Rudiger Dornbusch agreed with the emphasis Sachs had placed on the relation between saving and investment in understanding the current account and real exchange rate. However, he felt that Sachs had exaggerated the importance of investment. On the other hand, Robert Lawrence questioned the significance of investment for the U.S. He noted that the time-series regression for the U.S. shows little evidence of a consistent relation between the rate of investment and the current account.

The escalating U.S.–China trade conflicts have increasingly shadowed the outlook of the world economy. The Trump administration aims to achieve its strategic goals including reducing current account deficits, promoting the U.S. manufacturing sector, and curbing Chinese high-tech industries by waging the trade war against China. This paper argues that the current account deficits and the declining manufacturing sector in the U.S. are mainly driven by its internal structural factors, such as low saving rates, high labor costs, and rising service sector, rather than by the import competition from China. Moreover, the trade war further deteriorates the U.S. current account deficits and erode its comparative advantage, and it forces China to invest more in technological innovation and human capital, and thus promote its progress in high-tech industries. Thus, the U.S. will not be able to achieve its strategical goals and eventually lose the trade war. [ABSTRACT FROM AUTHOR]

This article reveals the effect of the 1971 dollar devaluation on the trade balance of the United States. The year 1971 saw a major realignment of exchange rates among the world's important currencies. The basic cause of these changes was the continuing deterioration of the U.S. trade and payments position, and their proximate cause the massive speculation against the dollar throughout the year and suspension of convertibility by the United States in August. The changes in exchange rates against the dollar -- the dollar price of foreign currencies -- are expected to initiate a major swing toward surplus in the U.S. trade balance and consequently to reduce substantially the surpluses of some other countries. In the first two major sections of the paper the analytics of revaluation are discussed, flrst from the point of view of a single revaluing country, with attention to the difliculties concerning export supply elasticities and the "pass-through" issue; and then from the standpoint of multilateral trade, using a model originally developed by Paul Armington. The next three sections focus on quantitative estimates of the long-run effects of the realignment. The first reports an extension of the Armington model, under several assumptions about the relevant demand, substitution, and supply elasticities; it develops a figure of a bit less than $8 billion for the swing in the U.S. trade surplus from a 1971 base, and consistent estimates for the whole trade matrix. Next comes a brief discussion of the empirical model for U.S. bilateral trade developed by Stephen Magee, which provides estimates of the U.S. row and column of the world trade matrix.

This article analyzes developments in the 1970 balance of payments in the U.S. Lawrence Krause asked whether the trade balance was tracking its usual relationships to demand changes in the U.S. and abroad. This paper extends his question to (a) the basic balance, defined as the current account plus the net direct investment account and (b) the balance on private financial capital, that is, private capital flows other than direct investment. In 1970 the balance on merchandise trade was $2.2 billion, up from $0.6 billion in 1969. Exports rose from $36.5 billion in 1969 to $42.0 billion in 1970, an increase of $5.6 billion, or 15 percent. Adjusted for the 1969 dock strike, which shifted exports from late 1969 into early 1970, exports rose by 12 percent in 1970, compared with 13 percent in 1969. Imports rose from $35.8 billion in 1969 to $39.8 billion in 1970, an increase of $4.0 billion, or 11 percent. The usual definition of the basic balance includes, above the line, the balance on current account plus net flows of private long-term capital, both direct and portfolio investment. In the wake of the sharp decline of interest rates that began in 1970, there occurred a substantial outflow of private financial capital in 1970, which will probably continue, at a diminished rate, in 1971.

The article presents a critical discussion of the papers by Seymour E. Harris and John V. Van Sickle on interregional competition and economic adjustments. According to the author Harris has developed his topic in a most interesting and stimulating fashion. He is to be complimented for this able presentation of the difficulties facing the Northeast in its attempt to maintain its competitive position in the U.S. Harris appears at the outset to favor the regional adjustment process of classical economics. After a brief description of this process, he contends that the expected adjustments do not take place or do so only after costly delays. Some policies of government such as banking policy and government relief and spending policies hamper adjustments, other policies that are classified as favoritism toward developing regions add to the burden of adjustment in the older regions. Harris' paper represents an important addition to interregional economic analysis, with particular reference to an area in which much investigation already has been undertaken.

The expansion of their overseas activities by banks headquartered in the United States is one of the most important developments in international finance during the last decade. For a number of years, the motivations behind this growth were obscured by the restrictions on capital outflows imposed by the U.S. Government in the mid-1960's as part of a program to improve the nation's balance of payments. However, even before the capital restrictions were terminated in January 1974, it was becoming increasingly clear to some observers that a basic transformation had occurred in the character of U.S. banking. The origins of this transformation have been examined on several occasions in the past, and those who follow the subject closely now have a good understanding of the dimensions of the changes which have occurred. On the other hand, the impact of the regulatory framework on the way in which U.S. banks conduct their foreign business is not so fully appreciated. To a considerable extent, this reflects the sparsity of efforts by the regulatory authorities themselves to assess the effects of their actions on the institutions over which they have oversight. The objective of this paper is to broaden understanding of the interplay of U.S. commercial bank expansion abroad and the regulatory posture of the Federal Reserve Board--the Federal agency with authority over the banks' foreign activities. [ABSTRACT FROM AUTHOR]

To better understand the role of special purpose entities (SPEs) in economic accounting statistics, international guidelines on foreign direct investment (FDI) positions and transactions recommend supplemental measures on SPEs but leave the accounting method for supplemental measures open to further research. This paper considers formulary apportionment as an accounting method for current account transactions related to FDI and for supplemental measures on SPEs, with an application for transactions in income in the U.S. current account. The empirical results reveal that formulary apportionment reduces U.S. income receipts and U.S. income payments on FDI, which yields an implied increase in U.S. gross domestic product (GDP) of 0.9 percent for the period 2005 to 2009. The results suggest that transactions attributable to non-resident SPEs have a relatively large effect on U.S. GDP while transactions attributable to resident SPEs have a relatively small effect on U.S. GDP. [ABSTRACT FROM AUTHOR]

The article reports on methods for the revaluation of gold as a solution for the inadequacy of the international monetary reserves of the U.S. There is strain on the gold reserves of the U.S. while the foreign held short term dollar claims have increased and caused the U.S. to examine the balance of payments implications in relation to monetary and fiscal policies. It is suggested that revaluing gold can meet long run increases in the demand for international liquidity, and a gradual proposal is developed in this paper.

In face of the continuation of America's enormous trade and current account deficits each year, President Obama called for a 50% increase in the annual volume of United States exports and President Trump is calling for the replacement of foreign made with domestically made products. The goal of achieving these significant improvements in the country's import-export performance is to curtail, if not eliminate, recurring trade deficits. It may be suggested that among many ways, trade deficits can be decreased through reductions in the volume and dollar value of imports. However, many semi-finished and finished product imports do become components of finished products and of commercial transactions that are usually designated as parts of the domestic contributions to the economy. By adding to the gross domestic product (GDP) of the United States these imports become sources for the country's economic growth generating as well exporting processes. This paper examines the role of such imports as origins of positive economic values for the United States economy and then demonstrates the potentials of major benefits by providing a series of case examples. [ABSTRACT FROM AUTHOR]

During the 2000s, we observed the accumulation of global imbalances resulting primarily from massive current account imbalances in the USA and in Asia. This paper studies the impact of external shocks on East Asian countries in order to determine if these can account for the Asian side of global imbalances. To this end, we estimate a structural vector autoregression ( VAR) model with block exogeneity using Bayesian inference. The three external shocks are an oil shock, a US monetary shock and a US financial shock. Our main findings are as follows: (i) external shocks account for the current account surplus in Korea, Malaysia, the Philippines, Singapore, and Thailand and, to a lesser extent, in Japan and Indonesia; (ii) the oil shock and the US monetary shock seem to have influenced current account balances through real and monetary channels, and the US financial shock through the financial channel. [ABSTRACT FROM AUTHOR]

Previous literature suggested that immigrants have a positive impact on international transactions such as exports. However, even though previous studies emphasize the role of individual and families in enhancing networks effects, none of these studies, surprisingly, have considered the heterogeneity of immigrants. Since each individual has different social and educational backgrounds, the impact of immigrants on exports may differ among individuals depending on their personal attributes. The main contribution of this paper is to go one step further in discussing the role of immigrants in enhancing host country exports. This research attempts to answer the question of whether all immigrants encourage host country exports or not. Using US state-level data, we find that the human capital level of immigrants plays an important role in enhancing US exports. Furthermore, using the data-sorting method developed by Hansen, we find that immigrants from countries with a high level of human capital increase US exports while immigrants from countries with a low level of human capital do not. [ABSTRACT FROM AUTHOR]

The influential work of Obstfeld and Rogoff argues that a closing-up of the US current account deficit involves a large exchange rate adjustment. However, the Obstfeld–Rogoff model works exclusively via demand-side channels and abstracts from possible supply-side changes. We extend the framework to allow for endogenous supply-side changes and show that this fundamentally alters the mechanism of the adjustment process. Allowing for such an extension attenuates quite significantly the implied exchange rate adjustment. The paper also provides some empirical evidence of variations in the supply-side structure and correlations with the exchange rate and the current account. The policy implications are that measures to foster a supply-side reaction would facilitate the external adjustment by alleviating an exclusive reliance on demand and exchange rate changes, with the latter being potentially destabilizing for the global financial system. [ABSTRACT FROM AUTHOR]

The article, part of a special issue on global economic relations in the 21st century, introduces the topic with a discussion of the growing U.S. balance of payments deficit, and the concurrent trade surpluses growing in China and other developing countries in Asia and the Middle East. The risks of these global trade imbalances are discussed, with reference to the positions of the other authors in the issue: Jane D'Arista, Thomas Palley, Igor Paunovic and Juan Carlos Moreno-Brid, and José Antonio Ocampo.

The world economy is characterised by a three-polar structure between the United States of America, Europe and Asia and fundamental disequilibria, revealed by the accumulating current account deficit of the United States. What role can exchange rate policies play in stabilizing the world economy? This paper argues that the stable exchange rates between Asian currencies and the U.S. dollar have made an important contribution to Asia's rapid economic growth. Reducing volatility has lowered risk and uncertainty for investors and the undervalued real exchange level has increased the profitability of Asian investments. But the need to correct the U.S. current account may require policies, which put this successful arrangement into question-with far-reaching consequences for growth worldwide. As a solution to this problem emerging Asian economies, including China, may want to consider re-pegging their currencies to a basket, which contains mainly the Euro and the Yen. This would preserve the benefits of stable exchange rates for Asia and avoid an excessive appreciation of the Euro, while giving the United States of America the flexibility to adjust its external imbalance. Such a choice is facilitated by the relative weight of Europe, Asia and the United States in Asian trade flows. [ABSTRACT FROM AUTHOR]

This paper explores the ability of portfolio and foreign direct investment flows to track movements in the euro and the yen against the dollar. Net portfolio flows from the euro area into US stocks – possibly reflecting differences in expected productivity growth – track movements in the euro against the dollar closely. Net FDI flows, which capture the recent burst in cross-border M&A activity, appear less important in tracking movements in the euro-dollar rate, possibly because many M&A transactions consist of share swaps. Movements in the yen versus the dollar remain more closely tied to conventional variables such as the current account and interest differential. [ABSTRACT FROM AUTHOR]

This paper points out lessons learned about the domestic adjustment to exchange rate change since the end of the Bretton Woods system. One form of indirect intervention by which countries may seek to avoid or reduce reserve losses or, alternatively, depreciation of their currencies is by foreign borrowing by governmental or government-related authorities. Even after the move to a system of what was termed generalized floating early in 1973, the use of direct restrictions to modify external positions continued. In a few countries with severe payments problems the liberalizing moves were in fact reversed, the most dramatic example of this was the imposition by Italy in May 1974 of a 50 percent deposit requirement on imports, including imports from its partner countries in the Common Market. Whereas during 1972 and the early part of 1973 the prevailing mood with respect to the U.S. balance of payments was one of elasticity pessimism, during the course of 1973 the tide began to turn, and the conviction grew that the Smithsonian devaluation was indeed having a favorable impact on the external position of the U.S. Despite substantial fluctuations, the exchange markets for the dollar and other major currencies do appear to have been dynamically, though cyclically, stable in the period since mid-1971. The fact that, over long periods of time changes in exchange rates tend to offset-- or be offset by--changes in relative price levels has long been recognized in the form of the Purchasing Power Parity concept.

This paper employs cointegration and error correction models to examine the dynamics of the yen-dollar real exchange rate and the US-Japan real trade balance. It uses quarterly data from 1973.I-1993.IV. The unit root tests reveal non-stationarity in both the variables. The ADF test fails to affirm any long-run association between the yen-dollar real exchange rate and the US-Japan real trade balance. Also, there is evidence of bidirectional short-run Granger causality between these two variables with mutual feedbacks. [ABSTRACT FROM AUTHOR]

The article presents authors' comments on three research papers on international trade and balance of payment by the U.S. by economists Hal B. Lary, J. Herbert Furth and Edward M. Bernstein. Lary has succeeded in putting many diverse elements of the U.S. balance of payments into a comprehensive and yet manageable form. In his analysis of the U.S. trade account, Lary says that the main influences that are perhaps amenable to economic analysis are income effects and price effects. Another interesting suggestion of Lary is that a faster rate of growth would make a positive contribution to the U.S. balance of payments. In another paper Furth suggests that payments deficit needs amendment if it is to be applicable to a reserve currency country like the U.S. He says that if the net cash decline involves a gold loss rather than an increase of foreigners' dollar balances, it may need more rapid correction than would otherwise be necessary. The paper by Bernstein says that the adequacy of reserves in the particular case of the U.S. cannot be tested in any simple or usual way. Two criteria have to be used relating to the state of the balance of payments and to the holdings of dollars by foreign countries.

The author comments on the study "Capital control and Monetary Policy in Asian Emerging Market Economies." Topics discussed include impact of capital controls on countries, four groups of countries in the empirical specification, and reason for the large capital outflows from countries following U.S. monetary policy tightening in the empirical results.

We examine the relationship between the US current account deficit, the international value of the dollar, and the dollar reserves of foreign central banks. The declining dollar could benefit US savers at the expense of foreign investors in the USA. [ABSTRACT FROM AUTHOR]

The main problem discussed in this paper is whether a balance of payments constraint exists within the Euro area. It is argued that the question of a member state's foreign position is still relevant, at difference from what happens in successful currency areas like the USA, where persistent imbalances in the payments from one district to another are acceptable and are made sustainable by financial transfers revolving around the system of taxes and transfers and the public debt. A currency area is an area where the price of a deposit with the banking system is the same wherever the deposit is held (i.e. there is uniformity in the value of commercial bank money). Persistent imbalances in payments between regions within the area are to be settled in either the common currency or (which is basically the same thing) the public debt. But while this is acceptable in the USA, it is far from acceptable in the Euro area, where creditor countries (Germany being by far the most important) clamour for a settlement in ‘hard assets’, like, e.g. state-owned real estate, if not gold. This means that a balance of payments constraint still binds state members of the Euro area, and is a serious threat to its survival. [ABSTRACT FROM PUBLISHER]