Documents Frankel, Jeffrey A. 3 results

"The IMF Articles of Agreement forbid a country from manipulating its currency for unfair advantage. The US Treasury has been legally required since 1988 to report to Congress biannually regarding whether individual trading partners are guilty of manipulation. One part of this paper tests econometrically two competing sets of hypothesized determinants of the Treasury decisions: (1) legitimate economic variables consistent with the IMF definition of manipulation – the partners' overall current account/GDP, its reserve changes and the real overvaluation of its currency, and (2) variables suggestive of domestic American political expediency – the bilateral trade balance, US unemployment and an election year dummy. The econometric results suggest that the Treasury verdicts are driven heavily by the US bilateral deficit, though other variables also turn out to be quite important.In 2005 China announced a switch to a new exchange rate regime. The exchange rate would be set with reference to a basket of other currencies, with numerical weights unannounced, allowing a movement of up to ± 0.3% within any given day. Although this step was originally accepted at face value in public policy circles, scepticism is in order. The second econometric part of the paper evaluates what exchange rate regime China has actually been following. We use the technique introduced by Frankel and Wei (1994): one regresses changes in the value of the local currency, in this case the RMB, against changes in the values of the dollar, euro, yen and other currencies that may be in the basket. We find that within 2005, the de facto regime remained a peg to a basket that put virtually all weight on the dollar. Subsequently there has been a modest but steady increase in flexibility with some weight shifted to a few non-dollar currencies – but not those one might expect. In any case, the weight on the dollar was still fairly heavy in 2006. The paper tests whether the decline in the implicit weight on the dollar is related to the pressure from US officials. It also considers whether the increase in flexibility that we have seen, small though it is, has been gradually accelerating, at a rate that would suggest the likelihood of some genuine flexibility in the not-so-distant future. "

"This paper investigates whether leading indicators can help explain the cross-country incidence of the 2008-09 financial crisis. Rather than looking for indicators with specific relevance to the current crisis, the selection of variables is driven by an extensive review of more than eighty papers from the previous literature on early warning indicators. The review suggests that central bank reserves and past movements in the real exchange rate are the two leading indicators that have proven the most useful in explaining crisis incidence across different countries and crises in the past. For the 2008-09 crisis, we use six different variables to measure crisis incidence: drops in GDP and industrial production, currency depreciation, stock market performance, reserve losses, or participation in an IMF program. We find that the level of reserves in 2007 appears as a consistent and statistically significant leading indicator of the current crisis, in line with the conclusions of the earlier literature. In addition to reserves, recent real appreciation is a statistically significant predictor of devaluation and of a measure of exchange market pressure during the current crisis. That our data on the crisis period include the first quarter of 2009 may explain why we find stronger results than earlier papers such as Obstfeld, Shambaugh and Taylor (2009, 2010) and Rose and Spiegel (2009a,b). "

"The report surveys the state of our knowledge regarding the effects of trade on the environment. A central question is whether globalization helps or hurts in achieving the best tradeoff between environmental and economic goals. Do international trade and investment allow countries to achieve more economic growth for any given level of environmental quality? Or do they damage environmental quality for any given rate of economic growth? Globalization is a complex trend, encompassing many forces and many effects. It would be surprising if all of them were always unfavorable to the environment, or all of them favorable. The highest priority should be to determine ways in which globalization can be successfully harnessed to promote protection of the environment, along with other shared objectives, as opposed to degradation of the environment. The report considers whether globalization has damaged environmental goals. Trade has some of its effects through the channel of accelerating economic growth, because trade contributes to growth analogously to investment, technological progress, and so on. Other effects come even when taking the level of income as given. In the case of each of the two channels, effects can be either positive or negative. "