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Jeffrey Frankel’s Blog

Let’s Go Back to Good Old Tariff-Cutting

TweetNov. 30, 2019  — The “bicycle theory” used to be a metaphor for international trade policy.  Just as standing still on a bicycle is not an option — one has to keep moving forward or else the bike will fall over – so it was said that international trade negotiators must continue to engage in successive rounds of liberalization, or else the open global trading system would be pulled down by protectionist interests.  I don’t know if the theory was ever right.  (And, to be honest, I...

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Weaponization of the Dollar May Backfire Yet

TweetOctober 26, 2019 —  This is a good time to gauge the rankings of the dollar and its rivals as major international currencies.  The Bank for International Settlements came out in September with its triennial survey of turnover in the world’s foreign exchange markets.  The IMF’s statistics on central bank holdings of foreign exchange reserves have gotten much more reliable lately, because China has joined in on reporting its holdings to the IMF (as Eswar Prasad explains).  And SWIFT...

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It’s Finally Time for German Fiscal Stimulus

TweetSeptember 30, 2019 — As long as the German economy was doing well, as it was during the recovery from the 2008 global financial crisis, there existed a coherent rationale for German fiscal austerity.  The national commitment to budget discipline was enshrined in the 2009 “debt brake,” which limits the federal structural deficit to 0.35% of GDP, and by the 2011 “schwarze Null” (that is, “black zero”) policy of fully balancing the budget.  Indeed Angela Merkel’s government proudly...

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Median income flattens

TweetSept. 10, 2019 —    Median real household income is the most useful single measure of the extent to which the typical American family has shared in GDP gains.  The latest annual number, released today by the Census Bureau, confirms the answer that many had suspected: the typical family has not experienced a statistically significant rise in income.  The gains have, rather, gone to those at the top of the income distribution.  Median household income did rise during 1993-2000 (during...

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RMB reaches 7.0; US names China a manipulator

TweetAugust 12, 2019 –The US-China trade war heated up in the first week of August.  On August 1, Donald Trump abruptly announced plans to impose a 10 % tariff on the remaining $300 billion of imports from China that he had not already hit with earlier tariffs.   The Chinese authorities then allowed their currency, the renminbi (RMB), to fall in value below the highly visible line of 7.0 RMB/$.  The US Administration promptly reacted on August 5 by naming China a “currency manipulator” —...

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Parallel to US-China trade war, Japan & Korea fall out

TweetAugust 8, 2019 — I responded to 9 questions in an interview today with Chosun Ilbo.  They concern the US-China trade war and the new simultaneous dispute between Korea and Japan.  The trade war between the world’s two largest economies continues and it appears the war is spilling over to currency now. What do you think are the fundamental reasons for this conflict? JF         It was legitimate for the outside world to ask China to make some changes.  But we did not sit down in a...

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Trump escalates China trade war

TweetAugust 5, 2019 — The China’s People’s Daily in an interview had three questions about the US threat of August 1 to apply tariffs on the remainder of Chinese goods. As the tariff list of Trump now covers all the goods from China, economists are warning that consumers will pay more for the tariff. Do you share this concern? JF Answer: Yes, the additional tariffs — 10% on the remaining $ 300 billion of imports from China — will clearly raise the price that American consumers have to pay...

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Let’s Forget about 2% Inflation

TweetJuly 28, 2019 — The Fed has some reasons for cutting interest rates at its meeting July 31, or subsequently if the US economy weakens. (And there are some good arguments on the other side as well, if growth remains as strong as it has been over the last year.)  But I find less persuasive one argument for easing: a perceived imperative to get inflation up to 2.0% or higher. Federal Reserve Chairman Ben Bernanke set a 2% target for the US inflation rate in January 2012.  Some other...

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Tenth birthday of the June 2009 recovery

TweetJune 17, 2019 — This month marks the 10th birthday of the US economic recovery.  June 2009  saw the “trough,” the end of the Great Recession of 2007-09. (As always, a declaration that the recession was over could as easily have been phrased less cheerfully as a declaration that the economy had hit “rock bottom.”) Why such a long expansion? Who or what deserves credit for the length of the expansion? There is plenty of credit to be parsed out to explain the end of the free-fall that...

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