Economic Policy

UK Budget Appeals to Adam Smith's Approach to Taxes... Sort of

Yesterday the Chancellor of the Exchequer (or UK 'finance minister') gave his annual budget speech where UK fiscal policy is set for the coming years. In announcing his tax changes he name-dropped Adam Smith as the inspiration for his objectives on tax:

Two hundred years ago, Adam Smith set out the four principles of good taxation - and they remain good principles today. Taxes should be simple, predictable, support work, and they should be fair. The rich should pay the most, and the poor least.  George Osbourne, 21 March 2011

Read more
Posted by Benjamin Mitra-Kahn at 10:39 am

Overview of PBoC Instruments

As a seminar focusing on China’s monetary policy, we’ve always been interested in the use of monetary instruments by People’s Bank of China (PBoC). In this posting, we’d like to wrap up the core elements of our past discussions on PBoC instruments.

  Read more

Posted by China Seminar at 9:40 pm

Interday and Intraday Movement of USDCNY

Suggested by our instructor Logan, we draw the following chart, which decomposes onshore USDCNY price movements into two parts, interday and intraday.

 

            Source: Bloomberg. Data as of Dec 16, 2011.

  Read more

Posted by China Seminar at 9:15 pm

Foreign Exchange Purchases: A Burden for Chinese Banks

Chinese FX reserves have reached $3.2 trillion. The majority of the FX reserves are accumulated through financial institutions, such as commercial banks, purchases of dollars from corporations and households. As an article in September 26th edition of the South China Morning Post puts it:

Let's look at one of these assets "left on bank balance sheets", an item obscurely classified in the official statistics as "financial institutions position for forex purchases". This category of assets now amounts to 25.3 trillion yuan.

Read more
Posted by China Seminar at 10:16 am

Foreign Exchange Reserves: A Double-Edged Sword

The recent currency bill passed by the US Senate has once again drawn attention to the Sino-US trade issue and the colossal foreign exchange reserves accumulated by the PBoC, China's central bank, as a result of years of Chinese surplus. Chinese FX reserves have increased by 17.2 times from 166 billion USD in 2000 to 3.2 trillion USD in September 2011, an annual growth rate of 29.5% from 2000 to 2010. The pile of reserve assets on PBoC’s balance sheet is impressive, but is it good policy for China keep such a high foreign reserve?

 

  Read more

Posted by China Seminar at 12:28 pm

NGDP target, in practice

By Daniel H. Neilson

Last week Goldman Sachs published a note in favor of the Fed's adopting a formal nominal GDP target, while Fed-watchers caught a whiff of a possible change in policy in the works. The proposal, specifically, is for the Fed to announce a target level for nominal GDP over the next 12 months, and to commit to undertaking asset purchases if it seemed that NGDP would come in too low. Scott Sumner, who has long advocated such a policy, felt vindicated, and other market monetarists also voiced their support. Even Paul Krugman seemed to think it might do some good. Read more

Posted by Daniel H. Neilson at 10:37 pm

The price is wrong

Focus on quantities

By Daniel H. Neilson

Debate continues over what is the right level for the dollar–renminbi exchange rate. I find it hard to see how focusing on this one price will lead to a productive outcome, politically or economically. Debating the exchange rate focuses the attention on the metric that guides policy. A better approach is to focus on the other side of the coin, namely reserve accumulation.

China's accumulation of US dollar reserves, mainly Treasury debt these days, is not a by-product of its exchange-rate policy. It is the exchange-rate policy. Read more

Posted by Daniel H. Neilson at 5:14 pm