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Rebalancing the Global Economy for Long-Term Growth: What does it mean for Coordinated Policies Edward K Y Chen,  [email_a...
Imbalance of the Global Economy <ul><li>Imbalance – Significant and persistent current account deficits/surpluses of some ...
<ul><li>Imbalance did not (at least not directly) lead to financial crisis which is more related to financial deregulation...
The Need for Coordinated Policies <ul><li>Market-induced adjustments, even if possible, can be painful and brutal, taking ...
<ul><li>Coordinated policies needed because both globalization and regionalization have taken place; the degree of inter-d...
Macroeconomic and Structural Policies <ul><li>Rebalancing coordinated policies should pay attention to: </li></ul><ul><li>...
1.  Exchange Rate Adjustments <ul><li>The importance of exchange rate adjustments for rebalancing has been grossly exagger...
2.  Consumption/Investment Stimulation in Surplus Countries <ul><li>Demand and Supply Factors: </li></ul><ul><li>To increa...
3.  Encouraging Private Saving in Deficit Countries <ul><li>Tax policies to provide incentives for savings (capital gains,...
4.  Export-led Growth in Deficit Countries <ul><li>1.  Coordinated exchange rate policy; spending released by reduced impo...
5.  An International Financial System <ul><li>No-system after the breakdown of the Bretton Woods in 1971.  IMF outdated? <...
<ul><li>THANK YOU </li></ul>
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Edward Chen (Beijing Sept 2010)

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Transcript of "Edward Chen (Beijing Sept 2010)"

  1. 1. Rebalancing the Global Economy for Long-Term Growth: What does it mean for Coordinated Policies Edward K Y Chen, [email_address] University of Hong Kong Beijing Workshop, September 2010
  2. 2. Imbalance of the Global Economy <ul><li>Imbalance – Significant and persistent current account deficits/surpluses of some countries. Not new, Britain, USA, Germany and Japan were surplus countries. Current global imbalance (China, Japan, Germany vis-à-vis USA, UK) since late 1990s. </li></ul><ul><li>Impact – global short-term growth possible but not sustainable in the long-run; also distortion of resources allocation; need for rebalancing. </li></ul>
  3. 3. <ul><li>Imbalance did not (at least not directly) lead to financial crisis which is more related to financial deregulation, over-innovations, quantitative easing, etc. Financial Crisis is a blessing in disguise, current account imbalances reduced during 2008-2009. </li></ul><ul><li>Current global imbalance is more related to the US Dollar standard/system (or a no-system) since 1971, and the structural factors of saving, investment, industrial development and productivity growth in deficit countries. </li></ul>
  4. 4. The Need for Coordinated Policies <ul><li>Market-induced adjustments, even if possible, can be painful and brutal, taking time and accompanied by deflation and depression. </li></ul><ul><li>Market-induced adjustments might not be possible because there is currently no self-correcting mechanism (exchange rate adjustments, international reserve system) in place. Non-market forces in operation – trade and investment protection, labour mobility restrictions. Policy-induced adjustments needed. </li></ul>
  5. 5. <ul><li>Coordinated policies needed because both globalization and regionalization have taken place; the degree of inter-dependence among nations is high in trade, investment, financial development. </li></ul><ul><li>4. USA and China have to take bilateral actions for rebalancing; US-China rebalancing affects other countries (cross-region and intra-region) and coordinated efforts are needed for ‘rebalancing with growth’, an IMF proposition. </li></ul>
  6. 6. Macroeconomic and Structural Policies <ul><li>Rebalancing coordinated policies should pay attention to: </li></ul><ul><li>Bilateral versus multilateral imbalances </li></ul><ul><li>Tradables versus non-tradables </li></ul><ul><li>Supply (structural) versus macroeconomic policies; micro versus macro aspects </li></ul><ul><li>Commercial policies – trade protection (goods and services) versus investment protection </li></ul>
  7. 7. 1. Exchange Rate Adjustments <ul><li>The importance of exchange rate adjustments for rebalancing has been grossly exaggerated. The crux of imbalance is saving and investment (macro) which are not directly related to exchange rate adjustments on the basis of elasticities (micro). Exchange rate deals with tradables only; services play an important role in rebalancing. Also exchange rate has no effect on imbalance arising from commercial polices. </li></ul><ul><li>Any exchange rate adjustment should also be coordinated </li></ul>
  8. 8. 2. Consumption/Investment Stimulation in Surplus Countries <ul><li>Demand and Supply Factors: </li></ul><ul><li>To increase consumption: fiscal policy; quantitative easing; consumer credit system; service sector promotion and deregulation; liberalization in trade in services; industry policy for competition, efficiency and product diversification for the domestic market. </li></ul><ul><li>To reduce saving: financial development to promote private investment; social security system, public investment in education, medical care to reduce precautionary saving; ownership structure change to increase corporate saving. </li></ul>
  9. 9. 3. Encouraging Private Saving in Deficit Countries <ul><li>Tax policies to provide incentives for savings (capital gains, interest withholding, etc) </li></ul><ul><li>Financial sector reforms to reduce transaction costs, to increase investor confidence and protection </li></ul><ul><li>Privatization of education, medical care, housing, etc to increase incentives for precautionary savings </li></ul>
  10. 10. 4. Export-led Growth in Deficit Countries <ul><li>1. Coordinated exchange rate policy; spending released by reduced imports be directed to non-tradables; change of domestic relative prices makes service sector promotion and reform necessary. </li></ul><ul><li>2. Supply-side policies – industry policy to enhance competition, productivity and efficiency; liberalization of FDI inflows (notably, unwarranted USA investment protection); ensuring policy changes not hijacked by special interests. </li></ul>
  11. 11. 5. An International Financial System <ul><li>No-system after the breakdown of the Bretton Woods in 1971. IMF outdated? </li></ul><ul><li>US Dollar Standard as a de facto system. </li></ul><ul><li>No coordinated exchange rate regimes (some fixed, some floating, some mixed) for self-correction of imbalances </li></ul><ul><li>In search of global governance for a new international financial architecture: G8, G-20, IMF-22 ? </li></ul><ul><li>In search of am international reserve (revamped SDR?) system and a process (a system/regime unlikely) for coordinated exchange rate polices </li></ul>
  12. 12. <ul><li>THANK YOU </li></ul>
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