Tuesday 22 Jun 2021 | 02:38 | SYDNEY
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Stephen Grenville's picture
People | experts Stephen Grenville
Nonresident Fellow
Lowy Institute
Stephen Grenville's picture
Areas of ExpertiseRegional economic integration; Australia's economic relations with East Asia; international financial flows and the global financial architecture; financial sector development in East Asia

Do financial markets understand QE?

Fed Chairman Ben Bernanke sent a shiver through financial markets worldwide late last month when he said that if the Fed saw 'real and sustainable improvement in the labour market' it could 'take a step down' in the volume of its quantitative easing (QE), possibly 'in the next few meetings'. Bond

Is China already a responsible economic stakeholder?

The meeting between Presidents Obama and Xi in Palm Springs over the weekend presented another opportunity to berate China for its international economic imbalances, but the two presidents sensibly found more fruitful things to talk about. It's getting harder to find fault in China's interaction

Insolvency: When countries go broke

The debt mess in the European periphery (Ireland, Greece, Spain, Cyprus and Italy) has been a reminder of how hard it is to sort out sovereign insolvency. Much damage is done to the international economy when there are no clear rules for sovereign bankruptcy, analogous to domestic bankruptcy

Asia Pacific trade: Choosing sides

Hugh White makes a compelling case that we may have to choose between America and China one day, with that moment of choice decided by the two great powers. Here is one small example where we could do something which might – just might – make it less likely that this moment of choice will

Debt paranoia

Global bond markets seem determined to fight the last war. Having ignored the debt build-up that brought down the US financial system in 2008 and crippled the European periphery in 2010, debt phobia is now imposing excessive austerity on key advanced countries which should be growing faster.

China doomsayers run out of arguments

Ever since China slowed from unsustainable 10%-plus growth figures in the pre-2008 decade, there has been a barrage of voices foreseeing a painful slump. Some even doubt that China will overtake American GDP.  Meanwhile, official figures show China growing at more than 7%, which is enough to

The deadly politics of fuel subsidies

When G20 leaders met in Pittsburgh in 2009, they committed to 'rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption'. Subsequent meetings have repeated this commitment. It's a big issue. One estimate puts the worldwide subsidies at 2.5

Is there a middle-income trap?

With Europe stagnating, America in a limp recovery and Japan still mired in its lost decades, world growth has been sustained over the past two years by the performance of the emerging countries, which accounted for half of world growth. This has occurred despite confident predictions that these

Fiscal policy: A rock and a hard place

With Spanish unemployment topping 27%, it's hard to argue that the recovery is on track. It's not just Spain: the IMF estimates, in its latest World Economic Outlook, that euro-area GDP declined nearly 1% during 2012 and this loss will not be recovered this year. The Fund forecasts growth of just

Why economists' errors matter

Economics blogs are all atwitter with discussion of Reinhart and Rogoff's (R&R) Excel error: it turns out that a 90% debt-to-GDP ratio is not a critical threshold for dramatically slower growth after all. All this excitement may be a storm in a teacup but there are wider lessons which go beyond

Commodity trade: Where's the scrutiny?

The Interpreter has commented on the relaxed attitude of Australian authorities to the possibility that world commodity prices might be manipulated to our disadvantage.  The Chinese seem more interested in the issue. The Glencore-Xstrata merger has finally been agreed by Chinese authorities 

Monetary policy: All in the mind (nearly)

The initial response to Japan's new monetary policy has been dramatic. Even before any action has been taken, the exchange rate has depreciated by 20% and equity prices are up 30%. People are talking as if the lost decades are over. Others, however, are arguing that Quantitative Easing (QE) shouldn

The IMF and the Cyprus debacle

When Prime Minister Gillard met IMF Managing Director Lagarde at the Bo'ao Conference last week, her opening gambit was to praise the IMF for sorting out the Cyprus problem. This is, to say the least, puzzling. Cyprus was an unmitigated mess which leaves a lasting legacy on the frail European

What's wrong with the NZ economy?

New Zealand pioneered economic reform. Now, nearly three decades later, some Kiwis are wondering why there has not been a bigger pay-off. New Zealand real income was above the OECD average in the 1960s, fell to less than 60% of the OECD average by 1990 and since then, despite sustained vigorous

When countries go broke

Every country has detailed procedures to govern private sector bankruptcy. These allow the residual assets of the insolvent company to be divided equitably between creditors. The insolvent party can begin again, reputation damaged but at least able to move forward with the slate wiped clean. But

Who is to blame for austerity?

The concerted global fiscal stimulus of 2009 is an example of excellent policy-making, the more outstanding because subsequent policies have been ineffectual in addressing the weak recovery in advanced economies. Why did success morph so quickly into the fiscal policy lethargy of the past three

Emerging countries go with capital flow

It goes without saying that the 2008 financial crisis altered the way capital flows between countries. Cross-border capital flows fell by 60% between 2007 and 2012. We now have enough perspective to evaluate how this might affect future flows to emerging economies. Risk perceptions altered

Free markets: Purity is impotence

Australia has a pretty consistent record of playing by the 'free market' rules in its international economic relations, with low tariffs, restrained use of anti-dumping restrictions, acceptance of international intellectual property norms and openness to international capital flows. By and large,

Can Abenomics fix Japan's economy?

Just about everyone agrees that the Japanese economy has underperformed for over two decades. The astounding rise of China in the same period deepens the hurt. Prime Minister Abe has a three-pronged response: monetary expansion, fiscal stimulus and structural reform.  Financial markets showed their

Currency wars and lost opportunities

In 2010, Brazil's finance minister complained that his country was the victim of a 'currency war'. Following the 2008 crisis, the advanced countries set their interest rates close to zero and implemented quantitative easing. These policies caused their exchange rates to depreciate and encouraged

Finance sector ills dormant, not cured

In America, the momentum for reform resulting from the 2008 financial crisis has dissipated, with Wall Street's continuing resistance weakening the initial political vigour. Some progress has been made. In due course, banks will have to hold more capital and meet liquidity requirements. US

US budget woes: It's all politics

US fiscal policy slid over the fiscal cliff last month without serious damage and the next debt ceiling hurdle has been pushed back a few months. But the longer-term issues remain unaddressed. This failure to articulate a credible and sustainable budget strategy saps confidence and holds back a

Is central bank independence at risk?

Two decades ago, monetary policy seemed to have reached the 'end of history': it had evolved an optimal format from which no further refinement seemed necessary. The two key elements were a focus on low inflation and central bank independence as the means of separating monetary policy from political

Floods: Jakarta's infrastructure deficit

Last week's floods in Jakarta illustrate that the private sector can provide valuable public goods, available free of charge to just about anyone. If you wanted to see how hard it was to get around the city, a free web link (lewatmana.com) gave access to real-time cameras at various strategic

Why economic policy fails

It was not pre-ordained that the economies of Europe, the US, and the UK would perform as poorly as it they have over the past two years. There were better policy options available which would have lowered unemployment (currently close to 8% in the US and the UK, and nearly 12% in Europe), fostered

Economic forecasting: Broken models

Economists are the butt of much mirth about their forecasting ability, but the recent performance may be getting beyond a joke. Failing to predict the precise outcome is one thing: being consistently wrong in the same direction is harder to explain, and very unhelpful for the policy-making process

The evolving post-crisis world

In a new paper written as background for the current Asian Development Bank Economic Outlook, Dr Stephen Grenville notes that Asia has come through the Global Financial Crisis well, with Chinese and Indian growth hardly slowing, and quick recoveries in those countries which were adversely affected.&

Central banks and capital flows

Sudden capital outflows were at the heart of the 1997-8 Asian Crisis. Ten years later, capital flows are back on the policy agenda, but in a very different context. The countries of East Asia are now getting more inflows than they can effectively absorb and the upward pressure on exchange rates is