Pacific Basin Notes

What’s Up with Inflation Expectations in Japan?

2024 – 13

| May 20, 2024

Both actual inflation and inflation expectations increased recently in Japan after decades of being undesirably low. An estimate based on nominal and real Japanese bond yields adjusted for liquidity and other risk premiums confirms that investors’ long-term inflation expectations have also increased. However, projections indicate that further increases are less likely and that long-term expected inflation in Japan is likely to remain anchored below the Bank of Japan’s 2% inflation target.

Global Market Discipline during Recent Policy Tightening

2023 – 28

| November 6, 2023

Financial market discipline, in the form of movements in yields charged on sovereign debt of emerging economies, during the 2021 onset of U.S. monetary policy tightening depended heavily on domestic economic conditions. This pattern matches yield movements during the 2013 taper tantrum. The pattern suggests that, while advanced economy policies can influence emerging market financial conditions, domestic policies such as government spending levels are also important. However, the differing responses for pandemic-related spending versus the overall current account suggest that markets distinguished between needed COVID-19 fiscal support and other spending.

The Bell Curve of Global CO2 Emission Intensity

2023 – 27

Zoë Arnaut, Òscar Jordà, and Fernanda Nechio | October 16, 2023

Countries’ commitments to reduce carbon dioxide (CO2) emissions can have important implications for their economies. Data since the 1800s reveal that the amount of CO2 emissions generated for a given level of output follows a bell-shaped curve. Pairing this with projections of future economic growth can help in predicting future overall emissions. Comparing actual data with past projections for levels of emission intensity reveals that reductions have been slower than predicted over the past 40 years. This divergence highlights the challenges many countries may face in reaching their emissions targets.

Global Supply Chain Pressures and U.S. Inflation

2023 – 14

Zheng Liu and Thuy Lan Nguyen | June 20, 2023

Global supply chain disruptions following the onset of the COVID-19 pandemic contributed to the rapid rise in U.S. inflation over the past two years. Evidence suggests that supply chain pressures pushed up the cost of inputs for goods production and the public’s expectations of higher future prices. These factors accounted for about 60% of the surge in U.S. inflation beginning in early 2021. Supply chain pressures began easing substantially in mid-2022, contributing to the slowdown in inflation.

Supply Chain Disruptions, Trade Costs, and Labor Markets

2023 – 02

Andrés Rodríguez-Clare, Mauricio Ulate, and Jose P. Vasquez | January 19, 2023

Global supply chain disruptions due to the COVID-19 pandemic have increased the costs of trade between countries. Given the interconnectedness of the U.S. economy with the rest of the world, higher trade costs can have important impacts on U.S. labor markets. A model of the U.S. economy that incorporates variation in industry concentrations across regions can help quantify these effects. The analysis suggests that recent global supply disruptions could cause a sizable and persistent reduction in labor force participation.

Are Inflation Expectations Well Anchored in Mexico?

2023 – 01

Remy Beauregard, Jens H.E. Christensen, Eric Fischer, and Simon Zhu | January 17, 2023

Price inflation has increased sharply since early 2021 in many countries, including Mexico. If sustained, high inflation in Mexico could raise questions about the ability of its central bank to bring inflation down to its 3% inflation target. However, analyzing the difference between market prices of nominal and inflation-indexed government bonds suggests investors’ long-term inflation expectations in Mexico are close to the central bank’s inflation target and are projected to remain so in coming years.

COVID-19 Fiscal Expansion and Inflation Expectations in Japan

2022 – 20

Jens H.E. Christensen and Mark M. Spiegel | August 3, 2022

The Japanese government’s strong response to the economic fallout from COVID-19 presents an opportunity to examine whether expansionary fiscal policies raise long-term inflation expectations. Analyzing market-based estimates of long-term inflation expectations in Japan shows that announcements of government fiscal stimulus under COVID-19 had no meaningful impact on investors’ long-term inflation expectations. This illustrates the challenge of moving long-term expectations after they become anchored below a central bank’s inflation target, as they have been in Japan.

Fiscal Multiplier at the Zero Bound: Evidence from Japan

2021 – 14

Ethan Goode, Zheng Liu, and Thuy Lan Nguyen | May 24, 2021

The United States has implemented large-scale fiscal policy measures to help households and businesses cushion the economic fallout from the COVID-19 pandemic and to strengthen the recovery. The Federal Reserve has also supported the economy by keeping its policy rate at the zero lower bound. Evidence from Japan suggests that, in a sustained zero-bound environment, an unexpected increase in government spending has much larger and more persistent effects on real GDP, and even more so when the economy is in a recession.

Capital Flow Surges and Rising Income Inequality

2021 – 09

Renuka Diwan, Zheng Liu, and Mark M. Spiegel | March 29, 2021

Surges of foreign investment into developing countries can amplify economic stress and potentially undermine their financial stability. New evidence suggests that excessive foreign capital inflows can also increase income inequality in emerging economies. Research shows that, as low global interest rates trigger more investment, those inflow surges benefit entrepreneurs by raising their returns, while lowering household earnings on bank deposits within the countries. The potential impact on income inequality provides another reason beyond financial stability for resisting abrupt surges in capital inflows.

Sudden Stops and COVID-19: Lessons from Mexico’s History

2020 – 33

Gianluca Benigno, Andrew Foerster, Christopher Otrok, and Alessandro Rebucci | November 9, 2020

The COVID-19 pandemic produced a sharp contraction in capital flows in emerging markets during the spring of 2020. Such contractions are known as “sudden stops” and historically have been associated with significant downturns in a country’s economic activity. Evidence from Mexico’s financial crisis history suggests that sudden stops tend to exhibit a common pattern: the crisis lasts one to two years before a rapid but partial recovery, followed by years of protracted stagnation.

How Severe Is China’s Slowdown? Evidence from China CAT

2019 – 26

John Fernald, Neil Gerstein, and Mark Spiegel | October 7, 2019

China’s official GDP shows that its pace of economic growth has slowed gradually since 2010 but remains remarkably high, around 6%. A new index, the China Cyclical Activity Tracker, or China CAT, provides an alternative way to measure fluctuations in Chinese economic activity using a weighted average of several non-GDP indicators. The index suggests that economic activity has slowed noticeably since 2017 to a pace slightly below trend. GDP growth statistics appear excessively smooth over recent years, but, as of mid-2019, are in line with the China CAT.

Are Workers Losing to Robots?

2019 – 25

Sylvain Leduc and Zheng Liu | September 30, 2019

The portion of national income that goes to workers, known as the labor share, has fallen substantially over the past 20 years. Even with strong employment growth in recent years, the labor share has remained at historically low levels. Automation has been an important driving factor. While it has increased labor productivity, the threat of automation has also weakened workers’ bargaining power in wage negotiations and led to stagnant wage growth. Analysis suggests that automation contributed substantially to the decline in the labor share.

Negative Interest Rates and Inflation Expectations in Japan

2019 – 22

Jens H.E. Christensen and Mark M. Spiegel | August 26, 2019

After Japan introduced a negative policy interest rate in 2016, market expectations for inflation over the medium term fell immediately. This can be seen by assessing how prices for Japanese bonds with embedded deflation protection responded to the policy announcement. The reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels. Japan’s experience also illustrates the desirability of taking preemptive steps to avoid the zero interest rate bound.

Inflationary Effects of Trade Disputes with China

2019 – 07

Galina Hale, Bart Hobijn, Fernanda Nechio, and Doris Wilson | February 25, 2019

Imports from China are an important part of overall U.S. imports of consumer and investment goods. Thus, tariffs on these imports are likely to have sizable effects on consumer, producer, and investment prices in this country. Tariffs implemented thus far may have contributed an estimated 0.1 percentage point to consumer price inflation and 0.4 percentage point to price inflation for business investment goods. If implemented, an across-the-board 25% tariff on all Chinese imports would raise consumer prices an additional 0.3 percentage point and investment prices an additional 1.0 percentage point.

China’s Exchange Rate Policies and U.S. Financial Markets

2017 – 28

Thomas M. Mertens and Patrick Shultz | October 2, 2017

Exchange rate stabilization or currency “pegs” are among the most prevalent interventions in international financial markets. Removing a peg to a safer currency can make the home currency more risky and less attractive to investors. When a country with market influence removes its peg from a safer country, the risk associated with holding either currency can be affected. Analyzing the effects of a scenario that changes a peg of the renminbi from the U.S. dollar to a basket of currencies suggests that China’s interest rates increase while U.S. interest rates decrease.

Forecasting China’s Role in World Oil Demand

2017 – 24

Deepa D. Datta and Robert J. Vigfusson | August 21, 2017

Although China’s growth has slowed recently, the country’s demand for oil could be entering a period of faster growth that could result in substantially higher oil prices. Because Americans buy and sell oil and petroleum products in the global market, global demand prospects influence the profitability of U.S. oil producers and the costs paid by U.S. consumers. Analysis based on the global relationship between economic development and oil demand illustrates the prospects for Chinese oil demand growth and the resulting opportunities and challenges for U.S. producers and consumers.

Reserve Requirements as a Chinese Macro Policy Tool

2017 – 15

Zheng Liu and Mark M. Spiegel | May 22, 2017

China’s central bank frequently adjusts its reserve requirements for commercial banks as a way to stabilize economic fluctuations. These adjustments affect the overall credit supply but can also lead to the reallocation of credit and capital. Evidence shows that increases in reserve requirements raise off-balance-sheet lending, which typically benefits China’s more productive private sector, at the expense of on-balance-sheet loans to less productive state-owned enterprises. Under certain conditions, reserve requirements can be a useful additional policy instrument for improving resource allocations and also for macroeconomic stabilization in China.

China’s IPO Activity and Equity Market Volatility

2016 – 18

Frank Packer and Mark Spiegel | June 6, 2016

China has recently considered reforming its regulation of initial public offerings in equity markets. Current policy allows more IPOs in rising markets but restricts new issues in falling markets, possibly to avoid pushing down values of existing stocks. However, recent research finds China’s IPO activity has no effect on stock price changes, perhaps because of the low volume relative to the overall market. As such, cyclical restrictions on IPOs do not appear to have stabilized Chinese markets, so policy reforms may improve market efficiency without increasing volatility.

Global Fallout from China’s Industrial Slowdown

2015 – 35

Mark Spiegel | November 23, 2015

China’s demand for imports helps support the global economic recovery, so China’s recent economic slowdown has caused international concern. China’s slowdown is concentrated in the industrial sector, while its emerging service sector has shown much new strength. However, China’s service sector is relatively closed and relies only modestly on imports. Accordingly, service sector growth is unlikely to offset the adverse implications of a slowing China for global trade.

Is China’s Growth Miracle Over?

2015 – 26

Zheng Liu | August 10, 2015

The recent slowdown in China’s growth has caused concern about its long-term growth prospects. Evidence suggests that, before 2008, China’s growth miracle was driven primarily by productivity improvement following economic policy reforms. Since 2008, however, growth has become more dependent on investment and overall growth has slowed. If the recent reform plans can successfully address the country’s structural imbalances, China could maintain a solid growth rate that might help smooth its transition to high-income status.

Has China’s Economy Become More “Standard”?

2014 – 30

John G. Fernald, Eric Hsu, and Mark M. Spiegel | October 6, 2014

Financial liberalization in China has broad implications, including changing how its central bank’s monetary policy affects the nation’s economy. An estimate of Chinese economic activity and inflation based on a broad set of indicators suggests that the way policy is transmitted to China’s economy has become more like Western market economies in the past decade. Although Chinese monetary policy may actually have exacerbated its economic downturn during the global financial crisis, a move toward stimulatory policy has helped ease its slower growth more recently.

Prospects for Asia and the Global Economy:
 Conference Summary

2014 – 26

Reuven Glick and Mark M. Spiegel | September 2, 2014

A new volume, Prospects for Asia and the Global Economy, summarizes the 2013 Asia Economic Policy Conference hosted by the Federal Reserve Bank of San Francisco’s Center for Pacific Basin Studies. The conference focused on challenges faced by policymakers in advanced and emerging economies as they continue to recover from the recent global financial crisis. Issues discussed included the monetary policy spillovers from advanced economies to emerging markets, the costs and benefits of foreign reserve accumulation, and the desirability of macroprudential interventions, restrictions on cross-border capital flows, and financial regulatory reforms to reduce the likelihood of future crises.

Home Currency Issuance in Global Debt Markets

2014 – 24

Galina B. Hale, Peter Jones, and Mark M. Spiegel | August 18, 2014

Historically, businesses in most countries have not been able to sell bonds denominated in their home currencies to foreign investors. In recent decades this trend has been changing. Research shows that bonds denominated in currencies other than the major global currencies have increased, particularly following the global financial crisis. However, not all countries were affected equally. Countries that were able to take advantage of the temporary disruption and near-zero interest rates in global financial markets were the ones with a combination of low government debt and a history of stable inflation.

Job Uncertainty and Chinese Household Savings

2014 – 03

Zheng Liu | February 3, 2014

China’s household saving rate has risen substantially during the past two decades. Research suggests that increased job uncertainty following reforms and massive layoffs in state-owned enterprises during the late 1990s contributed significantly to the increase. Facing higher unemployment risks after the reforms, workers in state-owned enterprises have tended to save more as a precaution. A recent study estimates that precautionary saving driven by the reforms explains about a third of Chinese urban household wealth accumulation from 1995 to 2002.

On the Reliability of Chinese Output Figures

2013 – 08

John Fernald, Israel Malkin, and Mark Spiegel | March 25, 2013

Some commentators have questioned whether China’s economy slowed more in 2012 than official gross domestic product figures indicate. However, the 2012 reported output and industrial production figures are consistent both with alternative Chinese indicators of the country’s economic activity, such as electricity production, and trade volume measures reported by non-Chinese sources. These alternative domestic and foreign sources provide no evidence that China’s economic growth was slower than official data indicate.

External Shocks and China’s Monetary Policy

2012 – 36

Zheng Liu and Mark M. Spiegel | December 13, 2012

China prohibits its private sector from freely trading foreign assets and tightly manages currency exchange rates. In the wake of the recent global financial crisis, interest rates on China’s foreign assets fell sharply, while yields on Chinese domestic assets remained relatively high, posing a challenge for China’s monetary policy. Opening the capital account would improve China’s capacity to weather external shocks, such as sudden declines in foreign interest rates. However, allowing the exchange rate to float without removing capital controls is less effective.

Is China Due for a Slowdown?

2012 – 31

Israel Malkin and Mark M. Spiegel | October 15, 2012

Many analysts have predicted that a Chinese economic slowdown is inevitable because the country is approaching the per capita income at which growth in other countries began to decelerate. However, China may escape such a slowdown because of its uneven development. An analysis based on episodes of rapid expansion in four other Asian countries suggests that growth in China’s more developed provinces may slow to 5.5% by the close of the decade. But growth in the country’s less-developed provinces is expected to run at a robust 7.5% pace.

Asia’s Role in the Post-Crisis Global Economy

2012 – 24

Reuven Glick and Mark M. Spiegel | August 13, 2012

In the wake of the global financial crisis of 2007–08, Asia has emerged as a pillar of financial stability and economic growth. A recent San Francisco Federal Reserve Bank conference focused on Asia’s changing role in the global economy. Asia’s relative strength is allowing it to play an expanded part in multilateral responses to the European sovereign debt crisis. And the reforms put in place following the 1997 Asian financial crisis offer models for countries currently trying to stabilize their economies.

The U.S. Content of “Made in China”

2011 – 25

Galina Hale and Bart Hobijn | August 8, 2011

Goods and services from China accounted for only 2.7% of U.S. personal consumption expenditures in 2010, of which less than half reflected the actual costs of Chinese imports. The rest went to U.S. businesses and workers transporting, selling, and marketing goods carrying the “Made in China” label. Although the fraction is higher when the imported content of goods made in the United States is considered, Chinese imports still make up only a small share of total U.S. consumer spending. This suggests that Chinese inflation will have little direct effect on U.S. consumer prices.

Could We Have Learned from the Asian Financial Crisis of 1997-98?

2011 – 06

Galina Hale | February 28, 2011

Economists drew a number of lessons from the Asian financial crisis of 1997-98 for preventing such episodes or mitigating their effects. Some of those are similar to lessons drawn from the global financial crisis of 2007-09. But differences in economic development and sophistication of the financial systems of East Asian countries compared with those of the United States and Western Europe made it difficult to apply the lessons of the earlier crisis.

What Is China’s Capital Seeking in a Global Environment?

2010 – 09

Titan Alon, Galina Hale and João Santos | March 22, 2010

China is becoming increasingly active in international markets for mergers and acquisitions. Chinese acquirers are buying stakes in foreign companies to get access to resources, markets, and technology, among other reasons. With China’s expanding wealth and vast foreign exchange resources, further growth in the volume and variety of foreign direct investment is likely.

Asia and the Global Financial Crisis: Conference Summary

2010 – 08

Reuven Glick and Mark M. Spiegel | March 15, 2010

“Asia and the Global Financial Crisis,” the first Asia Economic Policy Conference of the Federal Reserve Bank of San Francisco’s Center for Pacific Basin Studies, examined the impact of the crisis on Asian nations and the responses of policymakers. Although nations in the region were deeply affected, they generally recovered more quickly and vigorously than other industrial and emerging markets thanks to strong economic fundamentals and reforms enacted following financial crises in the 1990s.

Hong Kong and China and the Global Recession

2010 – 04

Janet L. Yellen | February 8, 2010

Hong Kong and China are recovering impressively from global recession thanks to effective stimulus programs. But authorities worry that expansionary U.S. monetary policy may fuel asset bubbles in their economies. In the long run, the recession may nudge China toward increased domestic consumption by highlighting the risks of export-driven development. This Letter is adapted from a report by the president and CEO of the Federal Reserve Bank of San Francisco on her visit to Hong Kong and China November 15-21, 2009. Each year, the president of the San Francisco Fed joins the Federal Reserve governor responsible for liaison with Asia on a fact-finding trip to the region, in keeping with the Bank’s objective of developing expertise on issues related to the Pacific Basin.

Interprovincial Inequality in China

2009 – 13

Christopher Candelaria, Mary Daly, and Galina Hale | April 10, 2009

Over the past 30 years, China has transformed itself, posting extraordinary rates of growth and increasing the living standards of nearly all its citizens. At the same time, China has become a far less equal nation, with vast differences emerging between those living in rural versus urban areas, inland versus coastal areas, and globally oriented versus more insular areas.

2008 Annual Pacific Basin Conference: Summary

2009 – 10

Reuven Glick | March 13, 2009

This Economic Letter summarizes the papers presented at the 2008 Annual Pacific Basin conference held September 19-20, 2008, at the Federal Reserve Bank of San Francisco under the sponsorship of the Bank’s Center for Pacific Basin Studies. Conference papers are listed at the end and are available online.

Economic Conditions in Korea and Japan: A Monetary Policymaker’s Report

2008 – 38

Janet L. Yellen | December 19, 2008

Each year, the President of the San Francisco Fed joins the Federal Reserve Board Governor responsible for liaison with Asia on a “fact-finding” trip to the region. These trips advance the Bank’s broad objectives of serving as a repository of expertise on economic, banking, and financial issues relating to the Pacific Basin and of building ties with policymakers and economic officials there.

Did Large Recalls of Chinese Consumer Goods Lower U.S. Imports from China?

2008 – 17

Christopher Candelaria and Galina Hale | June 13, 2008

In the latter half of 2007, the media were full of stories about recalls of consumer goods produced in China, with the majority related to high concentrations of lead used in the paint for toys. The volumes and the values of the affected goods were large; for example, the value of toy industry recalls totaled almost 20% of the overall monthly import of toys and related products from China.

Are Global Imbalances Due to Financial Underdevelopment in Emerging Economies?

2008 – 12

Diego Valderrama | April 11, 2008

Though much of the current discussion about global imbalances focuses on the swelling current account deficit in the U.S., the other side of this imbalance itself presents a puzzle. Specifically, the increase in U.S. international liabilities must be matched by an increase in assets elsewhere, and, in the current environment, a prominent “elsewhere” is among emerging Asian economies.

Economic Conditions in Singapore and Vietnam: A Monetary Policymaker’s Report

2008 – 07

Janet L. Yellen | February 22, 2008

Each year, the President of the San Francisco Fed joins the Federal Reserve Board Governor responsible for liaison with Asia on a “fact-finding” trip to the region. These trips advance the Bank’s broad objectives of serving as a repository of expertise on economic, banking, and financial issues relating to the Pacific Basin and of building ties with policymakers and economic officials there.

2007 Annual Pacific Basin Conference: Summary

2008 – 03

Reuven Glick | February 1, 2008

This Economic Letter summarizes the papers presented at the 2007 Annual Pacific Basin conference held at the Federal Reserve Bank of San Francisco on June 8-9, 2007, under the sponsorship of the Bank’s Center for Pacific Basin Studies. The papers are listed at the end and are online.

Sovereign Wealth Funds: Stumbling Blocks or Stepping Stones to Financial Globalization?

2007 – 38

Joshua Aizenman and Reuven Glick | December 14, 2007

Sovereign wealth funds (SWFs) are saving funds controlled by sovereign governments that hold and manage foreign assets. Private analysts put current sovereign wealth fund assets in the range of $1.5 to 2.5 trillion.

Financial Globalization and Monetary Policy

2007 – 34

Mark M. Spiegel | November 23, 2007

This Economic Letter is adapted from a speech by Mark Spiegel, Vice President and Director of the Center for Pacific Basin Studies, delivered at the Bank of Korea’s 15th annual Central Banking Seminar, “Increasing Capital Flows among Countries and Monetary Policy,” in Seoul, Republic of Korea, September 18-21, 2007.

Are Global Prices Converging or Diverging?

2007 – 24

Reuven Glick | August 10, 2007

Most people barely think twice anymore when they discover that their toothbrush was made in China, their tee-shirt was made in Honduras, and their car was made in Germany. With an increasing volume of goods and services flowing around the world, it is natural to assume that the marketplace has become “global,” which is to say, much more integrated.

The U.S. Economy and Monetary Policy

2007 – 19-20

Janet L. Yellen | July 13, 2007

This Economic Letter is adapted from a speech by Janet L. Yellen, president and chief executive officer of the Federal Reserve Bank of San Francisco, delivered via videoconference to the First Annual Conference of the U.C. Berkeley-National University of Singapore Risk Management Institute, on July 5, 2007.

Update on China: A Monetary Policymaker’s Report

2007 – 06

Janet L. Yellen | March 9, 2007

Each year, the President of the San Francisco Fed joins the Federal Reserve Board Governor responsible for liaison with Asia on a “fact-finding” trip to the region. These trips advance the Bank’s broad objectives of serving as a repository of expertise on economic, banking, and financial issues relating to the Pacific Basin and of building ties with policymakers and economic officials there.

2006 Annual Pacific Basin Conference: Summary

2007 – 04

Reuven Glick | February 9, 2007

This Economic Letter summarizes the papers presented at the annual Pacific Basin Conference held at the Federal Reserve Bank of San Francisco on June 16-17, 2006, under the sponsorship of the Bank’s Center for Pacific Basin Studies. The papers are listed at the end and are available online.

Interest Rates, Carry Trades, and Exchange Rate Movements

2006 – 31

Michele Cavallo | November 17, 2006

The U.S. dollar has seen some remarkable swings against major currencies recently. For example, over most of 2005, it gained nearly 18% against the yen and 13% against the euro, while between March and May 2006, it depreciated sharply against these currencies, losing almost 10% of its value.

Did Quantitative Easing by the Bank of Japan “Work”?

2006 – 28

Mark M. Spiegel | October 20, 2006

On March 19, 2001, the Bank of Japan (BOJ) embarked on an unprecedented monetary policy experiment, commonly referred to as “quantitative easing,” in an attempt to stimulate the nation’s stagnant economy. Under this policy, the BOJ increased its target for “current account balances” of commercial banks at the BOJ far in excess of their required reserve levels.

Central Bank Capital, Financial Strength, and the Bank of Japan

2006 – 11

Thomas F. Cargill | May 19, 2006

Central bank balance sheets and capital structure in the context of legal independence, transparency, and flexibility to pursue price stability have increasingly been recognized as important issues in the optimal design of central banks. However, capital structure is more complex than a set of accounting conventions designed to organize central bank operations.

External Imbalances and Adjustment in the Pacific Basin: Conference Summary

2006 – 04

Reuven Glick and Mark Spiegel | March 10, 2006

This Economic Letter summarizes the papers presented at the conference on “External Imbalances and Adjustment in the Pacific Basin” held at the Federal Reserve Bank of San Francisco on September 22-23, 2005, under the sponsorship of the Bank’s Center for Pacific Basin Studies.

Postal Savings in Japan and Mortgage Markets in the U.S.

2006 – 03

Thomas F. Cargill and Hal S. Scott | March 3, 2006

Financial system redesign has become high political drama in Japan. In August, 2005, Prime Minister Koizumi’s plan to privatize Japan’s huge postal savings and life insurance system (PSS) was defeated in the Lower House of the Diet.

The Bretton Woods System: Are We Experiencing a Revival? Symposium Summary

2005 – 32

Reuven Glick and Mark Spiegel | November 25, 2005

This Economic Letter summarizes the papers presented at the symposium “Revived Bretton Woods System: A New Paradigm for Asian Development?” held at the Federal Reserve Bank of San Francisco on February 4, 2005, under the joint sponsorship of the Bank’s Center for Pacific Basin Studies and the University of California at Berkeley’s Clausen Center for International Economics.

A Look at China’s New Exchange Rate Regime

2005 – 23

Mark M. Spiegel | September 9, 2005

On July 21, 2005, after more than a decade of strictly pegging the renminbi to the U.S. dollar at an exchange rate of 8.28, the People’s Bank of China (PBOC 2005a) announced a revaluation of the currency and a reform of the exchange rate regime. The revaluation puts the renminbi at 8.11 against the dollar, which amounts to an appreciation of 2.1%. Under the reform, the PBOC will incorporate a “reference basket” of currencies when choosing its target for the renminbi.

Does Europe’s Path to Monetary Union Provide Lessons for East Asia?

2005 – 19

Reuven Glick | August 12, 2005

In 1999, eleven European countries adopted the euro as their common currency (Greece followed in 2001). This followed a long period of gradually tying their national currencies together more tightly by limiting exchange rate fluctuations among member countries, culminating in the European Monetary Union (EMU).

What If Foreign Governments Diversified Their Reserves?

2005 – 17

Diego Valderrama | July 29, 2005

World financial markets paid close attention when officials from both South Korea and Japan said that their governments were considering diversifying their holdings of foreign reserves (Dougherty 2005 and Koizumi 2005). Many analysts thought these announcements were partly in response to the past depreciation of the dollar; if true, then it seemed likely that those two governments would sell some of their dollar-denominated assets, putting further downward pressure on the dollar.

Emerging Markets and Macroeconomic Volatility: Conference Summary

2005 – 03

Reuven Glick and Diego Valderrama | February 4, 2005

The last decade has witnessed a series of major macroeconomic crises in emerging market economies. Typically these crises have been characterized by the sudden stop of capital inflows, the collapse of fixed exchange rate regimes, falls in asset prices, and sharp declines in output.

To Float or Not to Float? Exchange Rate Regimes and Shocks

2005 – 01

Michele Cavallo | January 7, 2005

Many economists argue that a flexible exchange rate regime is preferable to a fixed exchange rate regime because it helps to insulate the domestic economy from adverse external shocks. For example, when export demand declines, a depreciation makes domestic goods more competitive abroad, stimulates an offsetting expansion in demand, and dampens the contraction in domestic economic activity.

Easing Out of the Bank of Japan’s Monetary Easing Policy

2004 – 33

Mark M. Spiegel | November 19, 2004

Based on the latest data and forecasts from Japan, it would be premature to declare the end of that country’s deflationary period. The Bank of Japan (BOJ) forecasts that consumer prices will continue to fall through the 2004 fiscal year, which ends in March 2005, albeit only at a 0.1% to 0.2% annual pace.

Reflections on China’s Economy

2004 – 31

Janet L. Yellen | November 5, 2004

This Economic Letter is adapted from remarks delivered to the International Financial Institutions Association of California and the National Association of Chinese American Bankers in Santa Monica, California, on October 15, 2004.

Japanese Foreign Exchange Intervention

2003 – 36

Mark M. Spiegel | December 12, 2003

Pacific Basin Notes. This series appears on an occasional basis. It is prepared under the auspices of the Center for Pacific Basin Monetary and Economic Studies within the FRBSF’s Economic Research Department.

Is Official Foreign Exchange Intervention Effective?

2003 – 20

Michael Hutchison | July 18, 2003

Many governments have intervened in foreign exchange markets to try to dampen volatility and to slow or reverse currency movements. Their concern is that excessive short-term volatility and longer-term swings in exchange rates that “overshoot” values justified by fundamental conditions may hurt their economies, particularly sectors heavily involved in international trade.

Foreign Exchange Reserves in East Asia: Why the High Demand?

2003 – 11

Joshua Aizenman and Nancy Marion | April 25, 2003

Since the 1997-1998 Asian financial crises, monetary authorities in emerging markets in East Asia have more than doubled their stockpiles of foreign exchange reserves; by the end of May 2002, they held $845 billion, or 38% of the world total. Of these countries, China, Taiwan, Hong Kong, South Korea, and Singapore rank just behind Japan as the world’s biggest holders of foreign exchange reserves–together those five countries hold reserves totaling nearly $700 billion.

Financial Issues in the Pacific Basin Region: Conference Summary

2002 – 38

Reuven Glick | December 27, 2002

This Economic Letter summarizes the papers presented at the conference “Financial Issues in the Pacific Basin Region” held at the Federal Reserve Bank of San Francisco on September 26-27, 2002, under the joint sponsorship of the Bank’s Center for Pacific Basin Monetary and Economic Studies and the Journal of the Japanese and International Economies.

Japan Passes Again on Fundamental Financial Reform

2002 – 28

Thomas Cargill | September 27, 2002

Japan’s Prime Minister Koizumi came to power in April 2001, promising to deal aggressively with the problems that underlay the country’s economic and political instability. Since then, his reform efforts have met increasing resistance, the economy and financial system have yet to improve, and his public support has fallen.

Reforming China’s Banking System

2002 – 17

Ramon Moreno | May 31, 2002

Since the late 1970s, China has undertaken economic reforms that have liberalized agricultural production, allowed the growth of a dynamic private sector, and gradually opened the economy to international trade and foreign direct investment. As a result, China stands as one of the fastest growing economies in the world.

Quantitative Easing by the Bank of Japan

2001 – 31

Mark Spiegel | November 2, 2001

In the wake of continued weakness in the Japanese economy and recent market turbulence due to the terrorist attacks in the U.S., the Bank of Japan (BOJ) recently increased the intensity of its quantitative easing program, which it had begun in March of this year. The BOJ initially switched from the usual approach to expansionary monetary policy—namely, a reduction in the target short-term interest rate—to quantitative easing because by that time it had been pursuing a target very close to zero (0.15%).

Japan’s New Prime Minister and the Postal Savings System

2001 – 15

Thomas F. Cargill and Naoyuki Yoshino | May 18, 2001

On April 26, 2001, Junichiro Koizumi was elected Prime Minister of Japan by the Parliament, winning a popular mandate to reform the ruling Liberal Democratic Party (LDP) and lead the country out of a decade of economic and financial distress. Koizumi is known as a maverick—a title of honor he will richly deserve if his proposal to privatize Japan’s Postal Savings System (PSS) succeeds: It would represent the most significant and difficult structural change in Japanese finance in the postwar period.

How Costly Are IMF Stabilization Programs?

2001 – 08

Michael Hutchison | March 30, 2001

After the 1997 balance of payments problems and currency crises that hit Korea, Indonesia, Thailand, and other countries, the stabilization programs supported by the International Monetary Fund (IMF) came under critical fire. At issue was the cost of these programs in terms of forgone output and employment in the countries that adopted them. Stiglitz (2000), for example, argued that “…the IMF’s economic ‘remedies’ often make things worse—turning slowdowns into recessions and recessions into depressions.” Similar statements by other leading economists have been commonplace.

Financial Crises in Emerging Markets

2001 – 07

Reuven Glick, Ramon Moreno, and Mark Spiegel | March 23, 2001

The causes of the currency crises in emerging markets during the late 1990s have been the subject of much debate—especially considering that, before the crises, many of the Asian countries involved tended to have balanced budgets and generally sound macroeconomic performance. Some observers argue that the generally favorable macroeconomic conditions indicate that the crises were not caused by incompatibility between fiscal and monetary policies and exchange rate pegs, but rather by the unexpected and self-fulfilling panics of foreign investors.

The Return of the “Japan Premium”: Trouble Ahead for Japanese Banks?

2001 – 06

Mark Spiegel | March 9, 2001

In January of 2001, overseas financial markets saw the re-emergence of the “Japan premium,” a term used to describe the extra interest charged on offshore loans to Japanese banks relative to similarly risky banks from other developed countries. So far, the magnitude of the Japan premium has been small, never exceeding 0.05% and 0.07%, depending on the bank examined.

East Asia: Recovery and Restructuring

2000 – 38

Ramon Moreno | December 29, 2000

More than three years have passed since the collapse of the Thai baht triggered a wave of currency and financial crises in East Asia. After experiencing sharp economic contraction in 1998, East Asian economies have rebounded strongly, buttressed by rapid growth in their exports to the United States.

Does Pegging Increase International trade?

2000 – 29

Ramon Moreno | September 29, 2000

The currency crises of the 1990s appeared to reinforce the view that, in the long run, all currency pegs are unsustainable. And yet, pegged regimes maintain their attraction. For example, Calvo and Reinhart (2000) find evidence that many countries intervene to smooth fluctuations in the exchange rate even while they claim to be floating.

Japan’s Recession: Is the Liquidity Trap Back?

2000 – 19

Michael Hutchison | June 16, 2000

Since the early 1990s, rising unemployment, price deflation, sluggish growth, and even recession have beleaguered Japan. The country’s central bank, the Bank of Japan (BOJ), has responded by lowering interest rates to stimulate demand.

Inflation Targeting for the Bank of Japan?

2000 – 11

Mark M. Spiegel | April 7, 2000

The Japanese government and the Bank of Japan (BOJ) are both considering the merits of conducting that nation’s monetary policy by pursuing an explicit inflation target. However, they seem to view inflation targeting as a means to quite different ends, which leads them to different conclusions about the proper timetable for a move towards such a regime.

Why Attack a Currency Board?

1999 – 36

Kenneth Kasa | November 26, 1999

On October 23, 1997, a massive speculative attack took place against the Hong Kong dollar. Interbank interest rates soared into triple digits, and one-month interest rates hit 50%.

Depreciations and Recessions

1999 – 30

Ramon Moreno | October 8, 1999

Following the dramatic currency depreciations in many East Asian economies in 1997, these countries suffered sharp and lingering recessions. This outcome runs counter to the notion that depreciations ought to boost output because they make domestically produced goods cheaper.

Early Warning Indicators of Banking Sector Distress

1999 – 28

Michael Hutchison | September 17, 1999

The financial crises in Japan and East Asia have been costly; they disrupted credit channels and curtailed economic activity not only in those countries but in other parts of the world as well. Such high costs make it desirable to have some form of early warning system of impending banking sector distress. If policymakers could identify the factors that lead to a higher likelihood of banking problems, they might be able to take steps to avert them.

East Asia’s Impact on Regional Growth in California

1999 – 02

Mary Daly | January 15, 1999

The East Asian economic slowdown has reduced employment growth throughout California, but some regions have been affected more than others. In the San Francisco Bay Area, strong trade ties to East Asia combined with a slowdown in the area’s prominent high-tech manufacturing sector have pushed employment growth below the state’s employment growth rate for the first time in three years.

Contractionary Effects of Devaluation

1998 – 34

Kenneth Kasa | November 13, 1998

What is perhaps most surprising about recent events in Asia is not the widespread currency devaluations but the subsequent declines in economic activity. Many observers noted that the declining yen and China’s devaluation of the yuan had eroded the competitiveness of these countries.

Responding to Asia’s Crises

1998 – 33

Ramon Moreno | November 6, 1998

It is now more than a year since the financial crises broke out in East Asia. Yet the sharp currency depreciations associated with the crises have not spurred rapid growth in their dollar exports, which would underpin a rebound in economic activity in the region.

Could Russia Have Learned from China?

1998 – 26

Kenneth Kasa | September 4, 1998

Just as October is the month for stock market crashes, it seems July must be the month for currency crises. Last year, of course, witnessed the collapse of several Southeast Asian currencies, with a fallout that is still being felt.

How Do Currency Crises Spread?

1998 – 25

Reuven Glick and Andrew Rose | August 28, 1998

The world has experienced three waves of speculative attacks on fixed exchange rate regimes recently: the European Monetary System (EMS) crisis of 1992-93, the Mexican meltdown and “Tequila Hangover” of 1994-95, and the “Asian Flu” of 1997-98. These currency crises generally involved countries in the same region. Why?

What Caused East Asia’s Financial Crisis?

1998 – 24

Ramon Moreno | August 7, 1998

The collapse of the Thai baht in July 1997 was followed by an unprecedented financial crisis in East Asia, from which these economies are still struggling to recover. A great deal of effort has been devoted to trying to understand its causes.

Capital Flows and Exchange Rates in the Pacific Basin

1998 – 22

Reuven Glick | July 17, 1998

The greater integration of emerging market countries with international capital markets has brought problems as well as benefits for recipients. On the one hand, access to foreign funds has helped finance economic development.

Long-run Determinants of East Asian Real Exchange Rates

1998 – 11

Menzie Chenn | April 10, 1998

Since the summer of 1997, when many East Asian currencies began to fall, a good deal of attention has been paid to the causes and consequences of exchange rate movements. This Economic Letter sheds some light on these issues by summarizing recent research into the long-run determinants of real exchange rates in East Asia (Chinn 1997).

East Asia’s Effect on the Twelfth District

1998 – 10

Mary Daly | March 27, 1998

Since July 2, 1997, when the fall of the Thai baht against the U.S. dollar rang the first alarm about problems in East Asia, numerous economists have forecast the effect of those developments on growth in the United States. Current consensus estimates suggest that the Asian turmoil likely will reduce real GDP growth in the nation by ½ to 1 percentage point in 1998.

A Currency Board for Indonesia?

1998 – 09

Mark M. Spiegel | March 20, 1998

In response to recent sharp devaluations in its currency, the Indonesian government recently raised the possibility of adopting a currency board. A standard currency board is a fixed exchange rate regime whose currency is fully backed by foreign reserves; that is, the government pledges to redeem its domestic currency for a foreign “hard currency” (in Indonesia’s case, United States dollars) at a fixed rate, and the full backing of outstanding currency implies that the government has the ability to fulfill this pledge.

Financial Crises and Bank Supervision: New Directions for Japan?

1997 – 37

Michael Hutchison | December 13, 1997

The economies of East Asia have been buffeted in recent months by bouts of speculative currency attacks, stock and real estate price declines, and banking problems. Media attention has focused on Thailand, Indonesia, Korea, Malaysia, and, most recently, Hong Kong.

Lessons from Thailand

1997 – 33

Ramon Moreno | November 7, 1997

After more than a decade of maintaining the Thai baht’s near-peg to the U.S. dollar, Thai authorities abandoned the peg on July 2, 1997. By October 24, market forces led the baht to depreciate by 60% against the U.S. dollar.

Get Ready for Japanese Trade Deficits

1997 – 28

Kenneth Kasa | October 3, 1997

From 1896 to 1970 the United States had a continuous string of surpluses in its balance of trade (in goods and services). Since the late 1970s it has had a continuous string of deficits.

Banking System Developments in the Four Asian Tigers

1997 – 22

Chan Huh | August 8, 1997

Over the past 30 years, Hong Kong, Korea, Singapore, and Taiwan have had remarkably rapid and sustained economic growth, earning the nickname the four tigers. Because of the new investment opportunities they provide and because their experiences may offer lessons for less developed economies, they have attracted considerable attention from the financial and policy communities, as well as from economists who have renewed interest in research in theories of economic growth.

Government Intervention and The East Asian Miracle

1997 – 20

Reuven Glick and Ramon Moreno | July 11, 1997

In recent years, the increasingly prosperous East Asian economies of Japan, Hong Kong, Singapore, Korea, and Taiwan have been hailed as models of achievement for other emerging economies. While a number of explanations may be offered for East Asia’s economic success, many observers are convinced that an outward-looking development strategy, particularly a dynamic export sector, has been a crucial ingredient.

Dynamic Measures of Competitiveness: Are the Geese Still Flying in Formation?

1997 – 17

Andrew Rose | May 30, 1997

Now and then, economists actually manage to come up with colorful phrases to describe economic phenomena. This Economic Letter focuses on the phenomenon known as “the flying geese formation.”

Does Singapore Invest Too Much?

1997 – 15

Kenneth Kasa | May 15, 1997

During the past 30 years, the economies of several East Asian nations grew on average by about 8% per year. Such rapid growth over such a long period of time is historically unprecedented.

Dealing with Currency Speculation in the Asian Pacific Basin

1997 – 10

Ramon Moreno | April 11, 1997

In recent years, policymakers in the Asian Pacific Basin have paid increasing attention to the possibility of the sudden depreciation of their currencies, in sharp contrast to their traditional concern with currency appreciation. This attention is a response to a number of developments, most notably: speculation against the currencies of Hong Kong, the Philippines, and Thailand in the wake of the Mexican peso crash of December 1994; uncertainty on the part of some observers about the maintenance of the peg of the Hong Kong dollar to the U.S. dollar after the July 1997 transfer of sovereignty to China; and concerns voiced in the financial press about the sustainability of relatively large current account deficits in some Southeast Asian economies.

The Costs of Managing Speculative Capital Inflows in the Pacific Basin

1997 – 09

Kenneth Kletzer | March 28, 1997

In recent years, many middle-income developing countries have experienced impressively large inflows of financial capital. The net capital inflow to developing Pacific Basin countries between 1990 and 1993 alone totaled $151 billion.

Pacific Basin Notes: Trade Liberalization in the Pacific Basin

1996 – 33

Ramon Moreno | November 8, 1996

This November, the 18 members of the Asia Pacific Economic Cooperation Forum (APEC)–which includes the U.S.–will hold a summit in Subic Bay, the Philippines, to approve individual and collective plans to liberalize trade and investment. APEC is but one of several organizations focused on trade issues in the Pacific Basin.