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To Make the Best of Brexit, the European Union Needs to Beef Up ESMA

Given London’s current central role in the European financial system, Brexit will generate significant risks and opportunities for the financial system of the remaining members of the European Union (EU-27). With Britain’s departure from the EU single market nearly certain to occur before mid-2019, the EU-27 should not wait to adapt its financial regulatory structure to successfully manage the resulting shifts. The main risks relate to the supervision of wholesale activities of financial...

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Brazilian Misery: A Cautionary Tale for the US?

Former President Luiz Inácio Lula da Silva of Brazil has been rising steadily in the polls for Brazil’s 2018 presidential elections, despite facing several corruption charges. Why? Because some Brazilians perceive increasingly that he can make Brazil great again. After all, it was under his stewardship that Brazil experienced the rise of the middle class, falling inequality, substantial job creation, and the shrinkage of the informal economy between 2003 and 2010. Of course, Lula’s record of...

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PIIE Debates Border Adjustment Tax

The proposal for a “border adjustment tax,” sponsored by House Speaker Paul Ryan and other House Republicans, has divided the business community and economic professionals alike, as a recent conference at the Peterson Institute for International Economics (PIIE) made clear. About the only point on which conference participants could agree is that the current corporation tax system is flawed and that a lower corporate tax rate and a value-added tax (VAT) to make up for the lost revenues would...

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The Truth about Mexico

As depicted by the Trump administration, the Mexican economy has flourished under the North American Free Trade Agreement (NAFTA) at the expense of its neighbors, particularly the United States. The trade deficit between the United States and Mexico is often cited by President Donald Trump and his economic advisers as the reason why “jobs have been destroyed” and “factories have been stolen.” Economists generally argue that trade deficits alone do not spur or impede a country’s economic...

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Trumped Up? The Mexican Economy in 2017 and Beyond

A little more than a year ago, the economic outlook for Mexico was looking up. In October 2015, economists at the International Monetary Fund (IMF) projected growth as likely to improve in 2017, following three years of subpar performance. The Fund’s World Economic Outlook flagship report estimated that average growth of 2 percent in 2013–15 would surge to 3 percent by the end of 2016. The IMF estimated that from 2017 to 2020 Mexican GDP would increase at an average pace of 3.2 percent per...

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Is Germany a Currency Manipulator?

Peter Navarro, the head of the Trump administration’s newly created National Trade Council, touched off a controversy on January 31 by telling the Financial Times that Germany is using a “grossly undervalued” euro to “exploit” the United States and its European Union partners. At one level, Mr. Navarro merely repeated a position laid out in greater detail in his September 2016 commentary on the Trump economic plan. Furthermore, his central economic assertion—that “while the euro freely floats...

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Trump Spells Trouble for Eastern Europe

In his first week in office President Donald Trump created plenty of anxiety in other countries. Mexico was the initial casualty of his announced policy shift towards tariffs on foreign goods, but several other countries, from Germany to Vietnam, were named on his "watch" list because of their trade surpluses with the United States. Eastern Europe is missing so far from this list, but the region will suffer the effects of Trump’s new policies in at least three ways. First, Trump has called on...

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May’s Brexit Will Be Both Hard and Risky

British Prime Minister Theresa May presented her opening gambit on January 17 for the upcoming Brexit negotiations. She signaled  that her government strives for a clean and hard Brexit, including a UK departure from the EU Internal Market and—apparently—the EU Customs Union. Control over immigration, an end to the jurisdiction of the European Court of Justice, and stopping UK contributions to the EU budget are also among  her political priorities. May confirmed “that the Government will put...

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Is the Brazilian Central Bank Coming to Grips with the Country’s Balance Sheet Recession?

After months of waiting for the Brazilian Central Bank to move more aggressively on interest rates as the country’s historic recession continued unabated, the monetary authority has finally cut the reference rate (Selic) by 75 basis points and signaled that it is ready to move at this pace over the next few months. Although the monetary policy committee has yet to state its views on the economy and on the drivers for the latest decision, a substantial drop in inflation at the end of 2016 and...

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The Need for Different Classes of Macroeconomic Models

This is my third piece on dynamic stochastic general equilibrium models (DSGEs). The first, a PIIE Policy Brief, was triggered by a project, led by David Vines, to assess how DSGEs had performed during the financial crisis (namely, badly) and how they could be improved. That brief went nearly viral (by the standards of blogs on DSGEs ☺). The many comments I received led me to write a second piece, a PIIE RealTime blog, which again led to a further round of reactions, prompting me to write...

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