302 The US China trade dispute

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1 Index absorption approach adjustable peg 25, 27 adjustment mechanism 27 aggregate demand 246 aggregate demand management 37 aggregate spending approach, see absorption approach Agreement on Subsidies and Countervailing Duties 13, 204 agricultural subsidies 64 American Empire 262 American Revolution 60 American system 61 anti-dumping legislation 59 arbitrage 185 Asian Development Bank 268 Asian financial crisis 49, 190 austerity 225, 237 balanced trade 67 Balanced Trade Restoration Act 67 Balassa-Samuelson hypothesis 73, Bancor 39 Bank for International Settlements 103, 226, 243 Bank of England 22, 45, 101, 191 Bank of Japan 101 Bayesian variance ratio test 80 beggar thy neighbour 44, 195 behavioural equilibrium exchange rate 83 Big Mac index 5, 70, 71 5, 90, 266 bimetallism 22 Blackwater 233 Boeing 232 border prices 163 Boyle s Law 5 Bretton Woods II 34, 49 Bretton Woods system 12, 19, 25 28, 30, 31, 33, 45, 48, 128, 181, 190, 217 British Empire 65, 262 Bush tax cuts 236, , 243 Buy American 61 capital account transactions 21 capital accumulation 14 capital formation 246 capital gains 250 carry trade 47, 51 catching-up economies 13, 272 causality testing 177 Center for Economic Policy Research 261 China Currency Manipulation Act 58 Chinese saving puzzle 198 Civil War (American) 22, 56, 57, 68 cold currency war 53 Cold War 12, 274 colonialism 65 commercial rate 20 commodity arbitrage 71 commodity standards 18 Common Agricultural Policy 61 Communist Manifesto 65 comparative advantage 37, 56, 60, 64 competitive depreciation 42, 43 competitive devaluation 12, 24, 28, 42, 43, 44, 48, 193, 195 competitive non-appreciation 3, 42, 43, 193 competitive undervaluation 11, 180 competitiveness 82, 83, 91, 101, 178, 236 Congressional Budget Office 68 Congressional Research Service 6, 238 Consumer Federation of America 247 consumption prices 163 consumption tax

2 302 The US China trade dispute consumption-based growth 196, 202 copyright 59 corrective devaluation 24 cost of capital 200 Council of Economic Advisers 239, 259 Council on Foreign Relations 33 countervailable subsidies 204 countervailing duties 1, 59 country crises 34 crawling bands 31, 181, 182 crawling peg 31, 33, 182 Credit Suisse 261 crowding out 225 currency board 30, 34, 101 Currency Exchange Rate Oversight Reform Act 1, 59 currency manipulation 179, 180, , 203, 271 currency of invoicing 55, , 163 5, 174 5, 207, 272 currency war current account gap 91 current account transactions 20 data mining 84 deadweight loss 60 debt service 226 deflation 23 deleveraging 202 demonstration effect 200 Department of Defense 233, 236 Department of Energy 233 Department of Homeland Security 233 deregulation 68, 206, 262, 263, 265 desired real equilibrium exchange rate 85 dirigisme 62 dirty floating 21 discretionary spending 230, 244 diseconomies of scale 161 diseconomies of scope 161 dollar hegemony 37, 43, 194, 234, 255 dollar phenomenon 80 dollar standard 40 dual exchange rates dumping 204 econometric models 272 Economic Growth and Tax Relief Reconciliation Act 239 economic nationalism 61 2 economic patriotism 61 2 Economic Report of the President 158 economies of scale 161, 255, 256 economies of scope 161 elasticities approach equilibrium exchange rate 81 6, 272 European Monetary System 19, 20, 45 European Monetary Union 181, 187 European Union 193 exchange rate economics 86 9, 272 exchange rate manipulation 2, 7 exchange rate misalignment 7, 21, 70 71, 92, 94, 95, 153, 191, 204 exchange rate pass-through , 161 2, expenditure switching policy 2, 55, 127, 147, 151, 161, 162, 271 export revenue 107, 108, 111, 127, 136, 165 export subsidies 59, 63 export-led growth 179, 265, 271 export-led growth hypothesis 13 export-led growth model 9, 14 external balance 84, 85 face value 48 factor productivity 14 fear of floating 12, 187 fear of pegging 12 Federal Reserve 206, 234, 246, 247 fiat currencies 18, 19, 194 fiat money 39 fiat standards 18 Financial Crisis Inquiry Commission 205 financial engineering 103, 260 financial innovation 249 financial rate 20 financial regulation 205 financial repression 14, 196 fiscal exposure, see fiscal gap fiscal gap 228, 234 fixed and flexible within a band 20 fixed but adjustable exchange rates 34, 45 fixed exchange rates 19, 34 6 flexible exchange rates 34 6 floating exchange rates 19 flow of funds data 199

3 Index 303 foreign aid 233 foreign direct investment 68, 167, 176, 187, 209 foreign exchange market intervention 45, 50, free floating 21, 189, 271 free markets 68 free trade 56, 57, 59, 60, 64 7, 188, 269, 272 fundamental disequilibrium 27 fundamental equilibrium exchange rate 21, 22, 84 5 Genoa conference 23 Gini coefficient 252, 253 Glass-Steagall Act 2 global financial crisis 4, 11, 15, 40, 46, 61, 89, 129, 130, 179, 187, 205 6, 210, 220, 222 global imbalances 34, 179, 191, 196 globalisation 66 gold exchange standard 23, 24, 45 gold points 22 gold standard 18, 22 3, 24, 38 Goldman Sachs 6, 261, 263, 264, 274 Government Accountability Office 228 Great Depression 1, 24, 57, 58, 240 great moderation 180, Great Recession 3, 46, 129, 130, 135, 139, 166, 210, 222, 243, 247 group think 263 Growth Tax Relief Reconciliation Act 239 Halliburton 233 Heritage Foundation 240 Hodrick-Prescott filter 84 holding period taxes 33 household survey data 199 human rights 66 hyperinflation 23, 44, 46, 80, 105 imperialism 63, 65 import certificates 67 import expenditure 107, 108, 111, 127, 136, 165 income distribution 250 income effect 130, 131, 135, 144, 145, 267 independent floating 31 industrial development 69 inequality 201, 203, 214, 250, 252, 254, 255, 261 infant industries 60 inflationary expectations 47 Institute for International Economics 6 intellectual property 59 intellectual property rights 13 intermediate-term model-based equilibrium exchange rate 86 internal balance 84, 85 International Bank for Reconstruction and Development 25 international competitiveness 24 international currency 37 International Financial Statistics 128 international liquidity 18 International Monetary Fund 10, 11, 12, 27, 33, 34, 36, 45, 48, 65, 128, 192 international reserves , 103 international trade 167, 187 International Trade Commission 214 internet shopping 51 intervention currency 25, 45 intrinsic value 48 Jamaica Accord 28, 190 J-Curve effect , , , 169, 272 Johansen test 80, 84, 92 Joint Committee on Taxation 237 Joint Select Committee on Deficit Reduction 244 laissez-faire economics 64 law of one price 5, 70, 71 6 leverage 247, 261 life cycle hypothesis 198, 249 life cycle model, see life cycle hypothesis liquidity creation mechanism 27 liquidity effect 47 liquidity trap 2 local currency pricing 164 Lockheed Martin 232 long-run equilibrium 82 lost decade 265 lost generation 265 Louvre Accord 102

4 304 The US China trade dispute macroeconomic identity 145 6, 147 managed floating 21, 31, 34, manufacturing industry market equilibrium exchange rate 82 mark-ups , 163, 173 Marshall-Lerner condition 136, 138, 145 Medicaid 230, 236, 240 Medicare 220, 223, 230, 235, 236, 240, 241 medium-run equilibrium 82 mercantilism 56, 63 4, 194, 217 military spending 230, 231 4, 236 Ministry of Economy, Trade and Industry 62 Ministry of International Trade and Industry 62 mint parity 22 model manipulation 7, 266 monetary model of exchange rates 178 moral hazard 205 Morgan Stanley 6 multinational corporations 200 Mundell-Fleming model 177 Napoleonic wars 48 national income identity 143 natural real equilibrium exchange rate 85 neoclassical economics 88 neoclassical models 86 neo-imperialism 66 net foreign assets 83, 91 new economy 148 nominal effective exchange rate 51, 86 non-accelerating inflation rate of unemployment 84 nullification crisis 57 oil prices Okun s Law 5 one-child policy 197, 198 output effect 238 outsourcing 163, 179, 233 over-the-counter derivatives 2 par value 19, 25 partial equilibrium analysis 143 People s Bank of China 164 permanent equilibrium exchange rate 85 permanent income hypothesis 249, 250 Peter Peterson Foundation 235 Peterson Institute for International Economics 7, 90, 149 Plaza Accord 33, 102, 186 portfolio balance model 178 potential GDP 84 precautionary saving 196, 197, 199 price effect 144, 145 pricing to market 76, 162 3, 173 privatization 68, 199, 200 producer currency pricing 164 productivity 202, 212, 256, 259, 267 profit maximization 201 property rights 68 protectionism 11, 48, 56 63, 66, 166, 194 public debt purchasing power parity 70, quantitative easing 22, 30, 42, 45, 46, 47, 51, 52, 69, 90, 188, 189, 190, 194, 204, 207, 269 quasi-fixed exchange rate regime 101 quotas 56, 59, 125 rational expectations 88 rational representative agent postulate 88 real effective exchange rate 21, 82, 91, 174 reduced-form real equilibrium approach 92 retrenchment risk 246 reverse mercantilism 194 revived Bretton Woods system 34 Ricardian equivalence 249 Roman Empire 214, 215 Royal Bank of Scotland 261 sales tax 234 saving rate 196, 197, 223, 224, 246, 261 saving investment balance 145, 146, 147, 156 7, 169 seigniorage 37, 48, 225

5 Index 305 Senate Committee on Banking, Housing and Urban Affairs 8 Senate Finance Committee 9 sex ratio imbalance 197 shadow banking system 261 short-run equilibrium 82 Sino-Japanese War 44 Sinophobia 13, 210 slavery 68 Smithsonian Agreement 20, 28 Smoot Hawley Act 1, 57, 58 Snake in the Tunnel 20, 28 social insurance 196 social safety net 197 social security 220, 223, 230, 235, 240, 241 Social Security trust fund 243 Southern Democratic Party 57 special drawing rights 27, 29, 31, 38, 40, 51, 181 speculation 185, 261, 262 Standard and Poor s 101, 225 State Department 233 state theory of money 37 state-owned enterprise 199, 200 sterilization 23, 103 supranational currency 34, 39 systemic crises 34 systemic stability initiative 50 target zones 21 2 tariffs 35, 56, 57, 62, 92, 125 tax policy 249 temporal ordering 177 terms of trade 83, 92, 124 5, 131, 167 9, 175, 212, 215 too big to fail 221, 261 trade impediments 35 trade liberalization 176 trade restrictions trade-weighted effective exchange rate 33 Treaty of Versailles 23 Triffin dilemma 27, 34, 40 Triffin paradox, see Triffin dilemma twin deficit 145, underlying balance approach 90 unit labour cost 83 United Nations 37 US-China Business Council 257, 259 volatility clustering 88 voodoo economics 208, 241, 244 war on terror 233 Washington Consensus 68, 69, 212, 269 wealth effect 249, 250 Whig Party 56 Wimbledon 260 withholding tax 191 World Bank 25, 34, 65 World Trade Organization 10, 11, 13, 59, 61, 69, World War I 61 World War II 61, 66, 68

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