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Ss china the us & currencies harvard kennedy school presentation
1. China, the US, and Currency Issues Jeffrey Frankel Harpel Professor, Harvard University Chinese Future Leaders, January 29, 2010
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3. API-120 - Macroeconomic Policy Analysis I Professor Jeffrey Frankel, Kennedy School of Government, Harvard University US external deficits have shown a negative trend in the long run (1960-2007) temporarily interrupted in recessions of 1980, 1990, 2001, & 2008. Previously CA>TB, due to intl. investment earnings. Now reversed.
4. The US deficits improved in 2008-09, but this will again be a temporary reversal, attributable to the US recession (=> import quantities ↓ & oil prices ↓) Trade & current accounts, in $ billions per quarter
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22. Source: HKMA, Half-Yearly Monetary and Financial Stability Report, June 2008 Components of China’s rising balance of payments and the evolution of foreign exchange reserves
23. Attempts to sterilize reserve inflow: While reserves (NFA) rose rapidly, the growth of the monetary base was kept to the growth of the real economy – even reduced in 2005-06. Successful sterilization in China: 2005-06 In 2005-06 China was remarkably successful.
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25. Sterilization faltered in 2007 & 2008 Source: HKMA, Half-Yearly Monetary and Financial Stability Report, June 2008 Growth of China’s monetary base, & its components
26. China’s CPI accelerates in 2007-08 Inflation 2002 to 2008 Q1 Source: HKMA, Half-Yearly Monetary and Financial Stability Report, June 2008
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28. China is now in the overheating + surplus quadrant of the Swan Diagram Spending A Exchange rate E in RMB/$ YY: Internal balance Y = Potential ED & TD ES & TD ES & TB>0 China 2010 BB: External balance CA =0 China 2002 ED & TB>0