AEA gathering showcases new research on capital controls, crises, trade, and inequality
| Pages | 20-23 |
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With their astonishing range of macroeconomic and microeconomic topics, the annual meetings of the American Economic Association (AEA) provide a virtual smorgasbord of contemporary research. This year's gathering, in an unseasonably frosty Atlanta on January 4-6, resists summary, but Jeromin Zettelmeyer, a Senior Economist in the IMF's Research Department, with the help of colleague Eswar Prasad, highlights several notable sessions.
There were few hotter topics at the meeting than the euro and its future as an international currency and as a major player in the world economy.Weighing in on the subject, and largely with upbeat assessments, were Fred Bergsten, Director of the Institute for International Economics (IIE); Otmar Issing, Chief Economist of the European Central Bank; Peter Kenen of Princeton University; Ronald McKinnon of Stanford University;Michael Mussa, former IMF Economic Counsellor and now senior fellow at the IIE; and Dominick Salvatore of Fordham University.
The roundtable discussants agreed that a number of key factors would determine the degree to which the euro becomes widely used outside the euro area.Among the more crucial factors were the speed with which European capital markets integrated and grew, Europe's economic performance (including relative to the United States, as Bergsten emphasized), and the growth of European financial and real linkages with the rest of the world. All thought the dollar would long remain the preeminent invoice currency for international transactions, but the euro's role in financial portfolios would naturally expand as a consequence of diversification. Kenen pointed to an already sharp rise in euro-denominated bond issues and the expansion-albeit a small one- in the euro's role as an international reserve currency.
On balance, the participants concurred, the euro was good news for the international economy, because it was good news for Europe.What risks lie ahead? Salvatore thought the chief one was the possibility of a major dollar-euro misalignment. Issing cautioned that it was too soon to say whether the move from a hegemonic to a bipolar system would be stabilizing or not.
The links between monetary and exchange rate policy, firms' pricing strategies, and exchange rate passthrough were the focus of a session chaired by Linda Goldberg of the New York Federal Reserve Bank.
Michael Devereux, University of British Columbia, and Charles Engel, University of Wisconsin, argued that exporters will generally want to set prices in the most stable currency. High monetary credibility in the importing country thus favors local currency pricing, implying no short-run pass-through.
In an extensive empirical paper, José Campa of IESE and Linda Goldberg provided some support for the view that countries with low pass-through have stable monetary environments. However, changes in pass-through coefficients in industrial countries seem to be driven mainly by changes in import composition rather than by macroeconomic factors.
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Giancarlo Corsetti of Yale University and Paolo Pesenti of the New York Federal Reserve explored the interaction between...
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