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Economic Disturbances and Equilibrium in an Integrated Global Economy

Name: Economic Disturbances and Equilibrium in an Integrated Global Economy
Author: Victor A. Canto
ISBN: 9780128139943

by Victor A. Canto

April 2018

Intermediate to advanced

433 pages

23h 49m

English

Academic Press

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Cover
Title page
Table of Contents
Copyright
Preface
Introduction: Asset Allocation: Indexing, Smart Beta, and ValueTiming
Section I: Arbitrage and Mobility
Chapter 1: Arbitrage, Mobility, and Equilibrium Prices
AbstractA 2X2X2X2 WorldEquilibrium Under AutarkyGlobal and National EquilibriumGlobal Equilibrium and the Trade AccountsThe Terms of Trade or Real Exchange RateInterest Rate ParityWhat Happens When the Terms of Trade Change in Predictable Directions?Adding the Final X2Mobility, Trade, and the Equalization of Price and Factor Returns Across BordersTransportation Costs and Overall EquilibriumMobility and the Incidence of Taxes and Other Economic ShocksThe Speed of Adjustment to a New Equilibrium
Chapter 2: Practical Applications: The Investment and Policy Insights and Implications Derived From Arbitrage and Mobility
AbstractIs the Law of One Price a Useful Concept?Convergence: The Implementation of the EuroThe Convergence and Postconvergence Euro EnvironmentsDivergence: The Dismantling of Bretton WoodsThe Local Inflation ResultsDoes the Law of One Price Still Hold?Are the Terms of Trade Constant?
Chapter 3: Are Commodity Price Increases Equivalent to Tax Increases?
AbstractAre Commodity Price Increases a Harbinger of Future Inflation?Solving the Signal Extraction ProblemSearching for the Equivalence between Price and Tax IncreasesDoes the Price/Tax Equivalence Always Hold?Considering the Different PossibilitiesInterpreting Relative Price SwingsIs a Commodity Relative Price Increase Bullish or Bearish?

Chapter 4: The Terms of Trade
AbstractA Broader EstimatePolicy LinksThe Adjustment Process: Investment ImplicationsDoes Our Theory Hold Water?Does the Relationship Hold for Other Countries?
Chapter 5: Yields, Risk Premium, and Terms of Trade
AbstractThe Different States of the WorldIdentifying the Different EnvironmentsSummary
Chapter 6: The Competitive Economic Environment: Lessons From the States
AbstractThe States’ Competitive EnvironmentThe States’ Income Tax Rates as a Proxy for Their Competitive EnvironmentThe Evidence: The Changing Competitive EnvironmentThe Interaction Among States’ Migration, State Income Tax Rates, and Right to WorkBrain Drain?Summary
Chapter 7: Economic Policy and Performance: The Small-Cap and Country Effect
AbstractA Framework for Regional Economic PerformanceThe Ranking of the StatesApplication: The States’ GDP Relative PerformanceApplication: The States’ Relative Stock Return Performance and the Size EffectInvestment Implications
Chapter 8: Migration: A Political Problem, an Economic Problem, or Both?
AbstractMigration: Europe and the Middle EastWhere Will the Migrants Go and What Will Be Their Economic Impact on These Economies?Politics or Economics?Is Europe Unique or Are These Effects Universal?The Recent US ExperienceImmigration as an Economic ProblemWho Should be Coming Into the Country?How Would We Modify Immigration: What to Look for and How to Take Into Account the Policy Interactions?The Economic Determinants of MigrationThe Anchor BabiesThe Politics of ImmigrationThe Burden of Adjustment
Section II: The Trade Balance
Chapter 9: Global Investing: The Macro Prospective Building Blocks
AbstractThe FrameworkThe Monetary SystemThe Exchange Rate and the Organization of the Monetary SystemThe Trade Balance and Capital FlowsWhat Happens When the Terms of Trade Change in Predictable Directions?
Chapter 10: Diversity and Harmonization
AbstractAutarkic EquilibriumFree Trade EquilibriumSome GeneralizationsThe Link Between Consumption Harmonization and Production DivergenceThe Politics of Job Protection PoliciesDiversity and Harmonization
Chapter 11: The State Competitive Environment: Integration and Convergence
AbstractA Framework for Regional Economic PerformanceThe Degree of Economic IntegrationSome EvidenceStates’ Fiscal Policies Could Potentially Impact the Degree of IntegrationThe Measurement of the Differences in Policies Across the StatesThe States’ Relative Marginal Tax RatesInvestment StrategyLimitations of the State Competitive Environment as an Investment StrategyCompetitiveness, Integration, and Convergence
Chapter 12: The Degree of Global Integration and National Economies’ Policy Options and Limitations
AbstractThe Integrated EconomyThe Price and Output Adjustment to a New EquilibriumThe Demand and Supply ResponseTransportation Costs and the Degree of IntegrationChina and the Commodity Supercycle in the Context of an Integrated Global EconomyThe Commodity SupercyclePolicy Differences and the Degree of Integration in an Economy Output LevelChina’s Impact on the Global Economy’s Equilibrium OutputImplications and Insights
Chapter 13: A Unified Theory: Terms of Trade, Real GDP Growth Rate Differentials, the Trade Balance, Capital Flows, and the Relative Stock Market Performance
AbstractThe Two PossibilitiesThe Terms of TradeThe Global Economy’s Adjustments to Economic Disturbances and the Correlation Among the Key Economic VariablesWhat Does the Global Data Tell Us?A Unified Theory
Appendix
Section III: Exchange Rate and the Terms of Trade
Chapter 14: Protectionism, Devaluation, and the Terms of Trade
AbstractThe Nominal Exchange RateFloating Exchange Rates, Purchasing Power Parity, and the Terms of TradeCurrency ManipulationTerms of Trade Changes, the Wealth Effect, and the Transfer ProblemA Signal Extraction Problem
Chapter 15: Exchange Rates, Devaluations, and the Terms of Trade
AbstractThe Equivalence Between Currency Manipulation and Countervailing DutiesWhy Tariffs May FailThe Protectionist Case for Exchange Rate ManagementThe Case Against Devaluation or RevaluationMore on the Case Against the Nominal Exchange RateExpanding the ViewThe Big Mac StandardThe Real Exchange Rate or Terms of Trade as an IndicatorThe Better and Broader Measure
Chapter 16: The Nominal Exchange Rate, the Terms of Trade, and the Economy
AbstractExpanding the Framework to Include Transportation CostsWhat Drives the Nominal Exchange Rate?Devaluation and Terms of Trade EffectsA Signal Extraction or a Conceptual Problem?What Moves the Exchange Rates and Terms of Trade?The Economic Performance During the CyclesThe EventsMexico and the Tequila EffectThe Thai Blood Baht and the Asian FluThe Russian CrisisThe Commodity Super CycleChina
Chapter 17: The US Experience: An Interpretation
AbstractTrade Balance: Value or Growth Signal?The Trade Balance and the Economy’s Price Earnings RatioTrade, Employment, and GrowthDo Exports Create Jobs? What About Imports?Economic Growth, the Trade Balance, and the Stock Market PerformanceThe Exchange Rate and Terms of Trade
Chapter 18: Relative Price Changes, Income Redistribution, and the Politics of Envy
AbstractNecessary ConditionsAgricultural Commodities, the New Oil?Impact of Agricultural Price Support ProgramsUnintended Consequences: Economic DependencyEconomic Growth and Price Support ProgramsUnintended Consequences: Oil and Agricultural ProductsA WarningMore Unintended Consequences: StarvationMore Unintended Consequences: Trade RestrictionsA GeneralizationMercantilism Does Not Make For Good EconomicsProtectionists Versus Free Trade ArgumentsThe Facts
Chapter 19: Self-Sufficiency, Nationalism, and Protectionism: The Common Elements
AbstractSelf-Sufficiency Policies: Potential PitfallsThe Narrow ViewBudget Constraints and Self-Sufficiency PoliciesSelf-Sufficiency or Trade Restriction Policy EquivalencesWinners and Losers and the Politics of Special Interest GroupsIntertemporal ConsiderationsIs Self-Sufficiency and Protectionism the Answer?
Chapter 20: Immigration and Protectionism
AbstractIllegal ImmigrationSecurityCrimeLegal Immigration: Economic IssuesThe Case for a Skills-Based Immigration SystemThe Unintended Consequences of an Immigration SystemThe Effect of Alternative Immigration Schemes
Chapter 21: Trade Policy, Protectionism, and Currency Manipulation
AbstractGlobal Implications of an Anticurrency Manipulation PolicyWill Currency Manipulation Deliver the Goods?China
Chapter 22: Protectionism and Trade Policy
AbstractThe Trade Balance and Real GDP GrowthThe Trade Balance and the Capital AccountThe Conquest by Purchase
Section IV: The Balance of Payments
Chapter 23: Global Investing: The Balance of Payments
AbstractThe Monetary SystemExtending the Framework to Account for Multiple Economies and CurrenciesThe Global and Individual Countries’ Monetary Equilibrium Under a Floating Exchange RateVariations on a Theme: Alternative Assumption Regarding the Money Demand FunctionsScenario 1: The Textbook Scenario Where Each Country Exclusively Uses Its Own Currency in All Domestic TransactionsScenario 2: Each Country Uses Both Currencies in Domestic TransactionsImplications and InsightsScenario 3: One Country’s Currency Circulates Both at Home and Abroad, but the Second Country’s Currency Only Circulates at HomeExtending the Framework: Accounting for Alternative Operating Procedures by the Monetary AuthoritiesScenario 1: Each Country’s Central bank Is Committed to not Allowing Its Currency to Appreciate and Thereby Lose What They Perceive to Be a Comparative Advantage Due to an Exchange Rate AppreciationScenario 2: Each Country Central Bank Is Committed to Not Allowing the Other Country’s Currency to Depreciate and Thereby Prevent the Other Country From Gaining What They Perceive to Be a Comparative Advantage Due to an Exchange Rate DepreciationScenario 3: One of the Country’s Central Bank Decides to Fix Its Exchange Rate to the Currency of Another CountryThe Mechanics of Operation of a Strict Fixed Exchange Rate Mechanism and Its Impact on the Domestic Monetary BaseThe Nonreserve Currency Country Equilibrium RelationshipsReining in the Reserve Currency CountryThat Relative Price ThingWhat if the Central Bank Chooses to Hold a 100% Inventory of the Commodity Used as Reserve? How Safe Is It Against a Speculative Attack?
Chapter 24: Monetary Views: Part I
AbstractIs There an Inflation/Output Trade-off?The Phillips Curve and the Dual MandateRules Versus Discretion
Chapter 25: Monetary Views: Part II
AbstractThe Monetarist ViewsCan the Fed Control the Quantity of Money?Exploring the Left Side of the EquationThe Case for a Quantity RuleThe Case for a Price RuleThe Financial Crisis
Chapter 26: The Greenspan Monetary Rule
Abstract
Chapter 27: Transparency and Rule-Based Monetary Policy
AbstractDeconstructing Monetary PolicyAnticipating Monetary ResponsesA Concern: Can the Fed Replicate Its Precrisis Success?
Chapter 28: A Single or Dual Mandate
AbstractThe Interaction between the Mandates and the Organization of the Monetary SystemEvaluating the Post-Crisis Monetary Policy
Chapter 29: The Demise of the Global Price Rule
AbstractThe Elements of the Global Price RuleWhat Could Go Wrong?Nonreserve Currency Issues
Chapter 30: The US Inflation Rate
AbstractThe Different SpecificationsThe ResultsA Final Thought
Chapter 31: The Exchange Rate and the Rest of the World Inflation
AbstractThe Perfect Substitutability or Fixed Exchange RateThe Textbook Flexible Exchange RateThe Partial Substitutability CaseEmpirical Relationships: The Exchange Rate Changes
Empirical Relationships: The Inflation Rate
Section V: The Financial Crisis—A Case Study
Chapter 32: The Financial Crisis: Inflection Point or Black Swan?
AbstractDid We Find a Black Swan?An Inflection Point?Hindsight or Foresight?The Parallels
Chapter 33: The Financial Crisis: Could We Have Avoided It or At Least Minimize Its Impact?
AbstractThe Credit and Leverage Economy (October 21, 2004)The Anatomy of a CrisisJapan Is a Perfect ExampleA Generalization of the Crisis PreconditionsHow to Deal with a Potential CrisisHow Resilient Is the US Financial System?Appendix A: Credit Creation Constraints
Chapter 34: The Roadmap to a Backcast
AbstractA Primer on the S&L CrisisThe Impact of the Regulatory Changes on the S&LsSpillover EffectsThe Fannie and Freddie CrisisA Primer on the Financial CrisisSpillover EffectsWere the RTC Lessons Useful?
Chapter 35: Credit, the Carry Trade, Tax Rates, and the Residential Real Estate Market: A Retrospective
AbstractThe Democratization of Credit and Income SmoothingThe Role of Real Estate in the Credit EquationThe Advantages of Owner-occupied Residential Real EstateFinancial Innovations and the Loss of TransparencyThe Credit ExplosionExcessive Credit Creation and the EconomyThe Fed’s Role and the Carry TradeDid the Carry Trade Fuel the Market?The Making of a StormThe Anatomy of a Crisis
Chapter 36: The Fed’s Crisis Response
AbstractThe Greenspan Fed’s Preemptive StrikeTwo Wrongs Do Not Make a RightSome Money and Banking MechanicsHelicopter Ben’s Crisis Response
Chapter 37: Monetary Policy and the Interaction Between the Money and Credit Markets
AbstractMoney Market Disturbances, Uncertainty, and the Demand for CashThe Interaction Between Price Stability and the Credit MarketsMoney Demand and Supply Shocks
Chapter 38: Is Central Banking an Art?
AbstractLow-Interest Rates and Keynesian MonetarismYield: Documenting the Effects Induced by Low-Interest RatesWhat Does the Data Tell Us?Keynesian Monetarism’s Track RecordMonetary Policy’s Burden
Chapter 39: After the Deluge?
AbstractA Brief Description of the Problem and Economic Conditions as We Saw ItThe Monetary Base, Bank Credit, Money of Zero Maturity, and the Financial CrisisThe Fed’s Crisis ResponseThe Monetary Aggregates After the CrisisInflation Rate, Interest Rates, the Slope of the Yield Curve, and the Credit SpreadHow Distorted Is the Fixed Income Market?
Chapter 40: The Panic of 2008: Cause and Consequences
AbstractBad Luck or Bad PoliciesLack of RegulationSearching for Causes and Cures: The Carry TradeSearching for Causes and Cures: The Government-Sponsored EnterprisesSearching for Causes and Cures: The HomeownersSearching for Causes and Cures: The Financing MechanismsSearching for Causes and Cures: Wealth Versus IncomeSearching for Causes and Cures: Capital Adequacy RatiosSearching for Causes and Cures: The Fed and Other Government AgenciesSome Conclusions
Chapter 41: Realignment?
AbstractA Government That Works?Failure or Success, What Does the Data Say?Policy-Induced Moral Hazard and Substitution EffectsMultiplier Effects?The Politics of Special Interest GroupsClass Warfare, the Politics of Redistribution, and the Slow Growth TrapA Lasting Legacy?Summary and Implications
Chapter 42: Obamanomics: An Evaluation
AbstractWas President Obama Dealt a Bad Hand?The Misery IndexThe Ranking of the Economic PerformanceImprovement Over the Initial Economic ConditionsTransformational Change or Trickle up Economics
Section VI: China—A Case Study
Chapter 43: China in a Global Economy: An Interpretation
AbstractWeeding Out the Wrong TheoriesThe Possibilities Under a Floating Exchange Rate SystemThe Fixed Exchange Rate ScenariosWhere Is China Today?
Chapter 44: China’s Wealth, Income, and the Savings Rate: The Complete Markets Case
AbstractWealth, Income, and the Savings Rate: The Incomplete Markets CaseImplicationsAppendix to Chapter 2: Consumption, Savings, and Net Wealth
Chapter 45: Examining China: Purchasing Power Parity, Terms of Trade, and Real Exchange Rates
AbstractA Purchasing Power Parity WorldNontraded Goods: A Violation of PPP?Rates of Returns and Relative Price Differentials Across National EconomiesPurchasing Power Parity Versus the Terms of TradeWas China’s Currency Overvalued?
Chapter 46: Examining China: Economic Growth, Exchange Rates, and Relative Stock Performance
AbstractA Tale of Two CountriesAre There More Than Two Tales?Which Tale is the Relevant One?Can Currency Manipulation Affect the Trade Balance?What Do We Know
Chapter 47: Examining China: Monetary Policy, Inflation Potential, and the Organization of the Monetary System Under a Floating Exchange Rate System
AbstractChina’s Monetary Policy and the Floating Exchange Rate ExperienceThe Central Bank Reaction to the Floating Exchange Rate Experience
Chapter 48: Examining China: Monetary Policy, Inflation Potential, and the Organization of the Monetary System Under a Fixed Exchange Rate System
AbstractThe RCC and NRCC CountriesChina’s Monetary Policy and the Fixed-Rate Experience
Chapter 49: Examining China: China as a Nonreserve Currency Country
AbstractThe Fixed Exchange Rate Mechanism Link to the Domestic Money SupplyThe Limits to the Central Bank’s Money Creation AbilityDomestic Credit Creation: Too Loose or Too TightThe Balance of PaymentsDomestic Credit Creation and Hot Capital FlowsGrading China’s Performance as a NRCC
Index

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Economic Disturbances and Equilibrium in an Integrated Global Economy

by Victor A. Canto

Table of Contents

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