{ "cells": [ { "cell_type": "markdown", "metadata": { "slideshow": { "slide_type": "notes" } }, "source": [ "# DeLong and Olney Macroeconomics 3rd Edition ch 1 sn 1.3 (NEEDS REVISION)" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "## Setting up the environment" ] }, { "cell_type": "code", "execution_count": 1, "metadata": {}, "outputs": [ { "data": { "application/javascript": [ "\n", "IPython.OutputArea.prototype._should_scroll = function(lines) {\n", " return false;}" ], "text/plain": [ "" ] }, "metadata": {}, "output_type": "display_data" } ], "source": [ "%%javascript\n", "\n", "IPython.OutputArea.prototype._should_scroll = function(lines) {\n", " return false;}" ] }, { "cell_type": "code", "execution_count": 2, "metadata": { "collapsed": true }, "outputs": [], "source": [ "# keep output cells from shifting to autoscroll..." ] }, { "cell_type": "code", "execution_count": 3, "metadata": {}, "outputs": [ { "name": "stderr", "output_type": "stream", "text": [ "/Users/delong/anaconda3/lib/python3.6/site-packages/statsmodels/compat/pandas.py:56: FutureWarning:\n", "\n", "The pandas.core.datetools module is deprecated and will be removed in a future version. Please use the pandas.tseries module instead.\n", "\n" ] }, { "name": "stdout", "output_type": "stream", "text": [ "LIBRARY VERSIONS\n", " \n", "Python version:\n", "3.6.1 |Anaconda custom (x86_64)| (default, May 11 2017, 13:04:09) \n", "[GCC 4.2.1 Compatible Apple LLVM 6.0 (clang-600.0.57)]\n", "\n", "matplotlib version: 2.0.2\n", "pandas version: 0.20.1\n", "numpy version: 1.12.1\n", "statsmodels version: 0.8.0\n", "PIL version: 4.1.1\n", "scipy version: 0.19.0\n" ] } ], "source": [ "# set up the environment by reading in libraries: \n", "# os... graphics... data manipulation... time... math... statistics...\n", "\n", "import sys\n", "import os\n", "from urllib.request import urlretrieve\n", "\n", "import matplotlib as mpl\n", "import matplotlib.pyplot as plt\n", "%matplotlib inline\n", "import PIL as pil\n", "import plotly\n", "plotly.tools.set_credentials_file(username='delong', api_key='d6vMMwVn4sEBmR2MLN9H')\n", "import plotly.plotly as py\n", "import plotly.graph_objs as go\n", "from plotly.graph_objs import Scatter\n", "from IPython.display import Image\n", "\n", "import pandas as pd\n", "from pandas import DataFrame, Series\n", "import pandas_datareader\n", "from datetime import datetime\n", "\n", "import scipy as sp\n", "import numpy as np\n", "import math\n", "import random\n", "\n", "import seaborn as sns\n", "import statsmodels\n", "import statsmodels.api as sm\n", "import statsmodels.formula.api as smf\n", "\n", "# report library versions...\n", "\n", "print(\"LIBRARY VERSIONS\")\n", "print(\" \")\n", "print(\"Python version:\\n{}\\n\".format(sys.version))\n", "print(\"matplotlib version: {}\".format(mpl.__version__))\n", "print(\"pandas version: {}\".format(pd.__version__))\n", "print(\"numpy version: {}\".format(np.__version__))\n", "print(\"statsmodels version: {}\".format(statsmodels.__version__))\n", "print(\"PIL version: {}\".format(pil.__version__))\n", "print(\"scipy version: {}\".format(sp.__version__))" ] }, { "cell_type": "code", "execution_count": 4, "metadata": { "collapsed": true }, "outputs": [], "source": [ "%matplotlib inline " ] }, { "cell_type": "code", "execution_count": 5, "metadata": { "collapsed": true }, "outputs": [], "source": [ "# graphics setup: seaborn-whitegrid and figure size...\n", "\n", "plt.style.use('seaborn-whitegrid')\n", "\n", "figure_size = plt.rcParams[\"figure.figsize\"]\n", "figure_size[0] = 12\n", "figure_size[1] = 10\n", "plt.rcParams[\"figure.figsize\"] = figure_size" ] }, { "cell_type": "code", "execution_count": 6, "metadata": { "collapsed": true }, "outputs": [], "source": [ "# import delong functions\n", "\n", "from delong_functions.data_functions import getdata_read_or_download # get or download data file\n", "from delong_functions.stat_functions import initialize_basic_figure # initialize graphics\n", "\n", "# check to see if functions successfully created... \n", "# NOW COMMENTED OUT: getdata_read_or_download? initialize_basic_figure?" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "## 1.3 The Current Macroeconomic Situation (REV—REVISE THIS VERY LAST!)" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "### 1.3.1 The World as a Whole\n", "\n", "Global growth is projected to be a hair less than 4 percent per year both this year and over the next two years. However, the speed of short-run growth appears to have peaked in major economies, and the major economies are less likely to grow together. In emerging-market and developing economies prospects are also diverging, with increases in the price of oil, increasing fear of higher tariffs, increasing interest rates in the United States, and worries aboutr what increasing rates will do to the values of currencies and thus the burden of international debt in countries currently borrowing from abroad. Turkey is in the most serious trouble of major developing and emerging-market economies, with prospects in Argentina, Brazil, and India deteriorating as they go on to the watchoist.\n", "\n", "Both recently announced and widely-anticipated increases in trade tariffs by the United States with the very high likelihood of retaliatory tariff increases by its affected trading partners could derail global economic recovery and might well reduce prospects for medium-term growth. They will have a direct impact reducing productivity. They will have an indirect impact by raising uncertainty, and thus inducing a postponement of investment until uncertainty is resolved. \n", "\n", "Interest rates in the Global North advanced economies remain exceptionally low and thus stimulative for investment, especially risky investment. Asset price and interest ratre fluctuations day-to-day and month-to-month remain low, spreads in required rates of return between safe and risky investments remain very low, valuations relative to normal estimates of fundamental value remain high and, in the IMF's word \"stretched\" in some places. \n", "\n", "This, however, could change rapidly. \n", "\n", "Possible triggers include:\n", "\n", "* war and rumors of war;\n", "* trade tensions and conflicts generating higher tariffs,geopolitical concerns;\n", "* increasing uncertainty about which parties will control which governments, and whether they will able to govern competently;\n", "* excessive interest rate increases driven by an unreasnable fear of rising inflation;\n", "* disruptive adjustments of portfolios after jumps in interest rates, asset valuations, and exchange rate levels. \n", "\n", "High-frequency data present a mixed picture of near-term global activity. Retail sales volumes appear to have picked up in the second quarter, and survey data of purchasing managers for the service sector remain generally strong. Industrial production, however, appears to have softened, and survey data of purchasing managers in manufacturing indicate a weakening of new export orders.\n", "\n", " " ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "### 1.3.2 The United States\n", "\n", "Higher yields in the United States, escalating trade tensions\n", "\n", "Advanced economy growth is expected to remain above trend at 2.4 percent in 2018— similar to 2017—before easing to 2.2 percent in 2019. The forecast for 2018 is lower by\n", "0.1 percentage point compared to the April WEO, largely reflecting greater-than-expected growth moderations in the euro area and Japan after several quarters of above-potential growth.\n", "• In the United States, near-term momentum in the economy is expected to strengthen temporarily in line with the April WEO forecast, with growth projected at 2.9 percent in 2018 and 2.7 percent in 2019. Substantial fiscal stimulus together with already-robust private final demand will lift output further above potential and lower the unemployment rate below levels last registered 50 years ago, creating additional inflationary pressures. Imports are set to pick up with stronger domestic demand, increasing the US current account deficit and widening excess global imbalances.\n", "\n", "US Treasury 10-year yields, at around 2.85 percent as of early July, have risen modestly since February, while \n", "\n", "With firmer readings on inflation and strong job creation, the US Federal Reserve continued the course of gradual policy normalization. It raised the target range for the Federal Funds rate by 25 basis points in June, while signaling two additional rate hikes in 2018 and three in 2019—a steeper schedule than indicated in March. \n", "\n", "The balance of risks has shifted further to the downside, including in the short term. The recently announced and anticipated tariff increases by the United States and retaliatory measures by trading partners have increased the likelihood of escalating and sustained trade actions. These could derail the recovery and depress medium-term growth prospects, both through their direct impact on resource allocation and productivity and by raising uncertainty and taking a toll on investment. \n", "\n", "Financial market conditions remain accommodative for advanced economies—with compressed spreads, stretched valuations in some markets, and low volatility—but this could change rapidly. \n", "\n", "Higher inflation readings in the United States, where unemployment is below 4 percent but markets are pricing in a much shallower path of interest rate increases than the one in the projections of the Federal Open Market Committee, could also lead to a sudden reassessment of fundamentals and risks by investors. Tighter financial conditions could potentially cause disruptive portfolio adjustments, sharp exchange rate movements, and further reductions in capital inflows to emerging markets, particularly those with weaker fundamentals or higher political risks.\n", "\n", "\n", "Commodity prices and inflation. Largely reflecting supply shortfalls, global oil prices increased 16 percent between February 2018 (the reference period for the April 2018 WEO) and early June 2018 (the reference period for the July 2018 WEO Update). In June, the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers agreed to raise oil production by about 1 million barrels per day from current levels, correcting the recent undershooting of the November 2016 group target. Market expectations suggest that declining capacity in Venezuela and US sanctions on Iran may pose difficulties for the group to deliver the agreed upon production increase consistently. Futures markets, however, indicate prices are likely to decline over the next 4–5 years (in part due to increased US shale production)—as of end-June, medium-term futures prices are about $59 per barrel (20 percent below current levels). The increase in fuel prices has lifted headline inflation in advanced and emerging market economies. Core inflation has strengthened in the United States as the labor market has tightened further, \n", "\n", "Exchange rates and capital flows. As of early July 2018, the US dollar has strengthened by over 5 percent in real effective terms since February (the reference period for the April 2018 WEO), \n", "\n", "signs of firmer-than- expected inflation in the United States could lead to a shift in market expectations of US interest rate hikes, which are currently well below those in the WEO baseline forecast. A sudden deterioration of risk appetite could trigger disruptive portfolio adjustments, accelerate and broaden the reversal of capital flows from emerging markets, and lead to further US dollar appreciation, straining economies with high leverage, fixed exchange rates or balance sheet mismatches.\n", "\n", "As of the end of 2004, the U.S. macroeconomy was enjoying a moderately strong but uneven recovery. The collapse of the dot-com stock market bubble in 2000 and the September 11, 2001, terrorist destruction of the World Trade Center and attack on the Pentagon triggered a decline in economic activity — a recession — as businesses that were more pessimistic about the prospect of future profits and scared of the uncertainty produced by terrorism cut back their investment spend ing, and production and employment fell. Between the beginning of the reces sion and the end of 2001, the U.S. economy lost 0.9 million jobs. In response to these adverse shocks, the Federal Reserve reduced interest rates far and fast to try to encourage businesses to invest more: The three-month money-market nom inal interest rate that had been 6.74 percent per year in the summer of 2000 had been cut to 1.75 percent per year by the late fall of 2001 and to 1 percent by the middle of 2003. And the Bush tax cuts directed more money into the hands of con sumers, who increased their spending, which reduced the magnitude of the reces sion’s spending shortfall.\n", "Thus slowly in 2002 and more rapidly in 2003, the economy began to recover. Demand and production began to grow again. However, demand and production growth in 2003 and 2004 was, in everyone’s estimation, insufficient. Because of rapid underlying productivity growth in the American economy, the renewed economic expansion did little to expand employment. With a relatively disappointing job market, wages did not rise by much. The recovery of 2003 and 2004 did enormous amounts to boost productivity and profits, substantial amounts to boost produc tion, but little to boost employment or wages.\n", "By the end of 2004 there were renewed worries among economists. One set of worries was that the United States could not afford the large tax cuts of the Bush administration — that they would produce very large budget deficits that would retard economic growth in the future. The Bush tax cuts, in combination with the extra defense spending authorized after September 11, eliminated the government budget surplus that had been painfully created during the 1990s. Given our low\n", " private saving rate, the elimination of public saving was likely in the medium run to reduce investment, and thus to slow growth. And the tax cuts were not designed in a way that would produce many significant supply-side production benefits. The principal long-run impact of the tax cuts would be a further reduction in America’s already low national saving rate and a slowing of economic growth.\n", "Moreover, by the end of 2004 there were worries that a forthcoming sharp decline in the value of the dollar would provide a further adverse and contrac tionary shock to the United States and to the world economy. Should foreign exchange speculators lose confidence in the dollar, the value of foreign currency could rise far and fast, possibly causing macroeconomic problems. Economists are very good at pointing out economic situations that are inconsistent with funda mental values — policies, imbalances, or balance sheet problems that cannot possi bly last and are bound to end, perhaps in a crisis. But they are bad at forecasting when and how such imbalances will end.\n", "The recession of 2001 had been preceded by a remarkable decade-long economic boom. Policy makers and economists advocating the Clinton administration’s eco nomic programs — deficit reduction and the lowering of trade barriers — had done so in the interest of accelerating long-run growth. Reduced trade barriers would allow for closer international integration, a finer international division of labor, and increased productivity. Deficit reduction would make possible high-investment eco nomic expansion, which would then become high-productivity growth expansion.\n", "Until 1996 there were few signs that high investment was leading to high productivity growth, but then the pace of economic growth exploded. Perhaps the political claims in the early 1990s that deficit reduction would ignite a high-investment and high-productivity growth recovery were coming true. Perhaps the U.S. econ omy was simply benefiting from the sudden wave of rapid productivity growth driven by the technological revolutions in data processing and data communications. The most likely possibility was and is that both were true. This was confirmed by the continuation of rapid growth in American labor productivity through the recession of 2001 and into the recovery that followed. The “new economy” of the 1990s that optimists had seen as the result of technological revolutions in information technol ogy was indeed a reality, and the principal beneficiaries were consumers who found themselves able to buy at low prices and businesses that found that computerization greatly increased productivity.\n", "\n", " " ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "### 1.3.3 Europe\n", "\n", "Core inflation has inched up in the euro area. \n", "\n", "Growth in the euro area economy is projected to slow gradually from\n", "2.4 percent in 2017 to 2.2 percent in 2018 and to 1.9 percent in 2019 (a downward revision of 0.2 percentage point for 2018 and 0.1 percentage point for 2019 compared with the April WEO).\n", "\n", "The ECB announced that it will taper its monthly asset purchases from the current\n", "€30 billion to €15 billion in October, with an anticipated end to the program on December 31. It also indicated it will maintain policy rates at their current levels at least through the summer of 2019, a somewhat more accommodative forward guidance than anticipated by markets. \n", "\n", "yields on German 10-year bunds, at around 30 basis points, have declined over the same period. Among other advanced economies, in late May Italian sovereign spreads widened by their largest amount since 2012, following difficulties around the \n", "\n", "Commodity prices and inflation. Largely reflecting supply shortfalls, global oil prices increased 16 percent between February 2018 (the reference period for the April 2018 WEO) and early June 2018 (the reference period for the July 2018 WEO Update). In June, the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers agreed to raise oil production by about 1 million barrels per day from current levels, correcting the recent undershooting of the November 2016 group target. Market expectations suggest that declining capacity in Venezuela and US sanctions on Iran may pose difficulties for the group to deliver the agreed upon production increase consistently. Futures markets, however, indicate prices are likely to decline over the next 4–5 years (in part due to increased US shale production)—as of end-June, medium-term futures prices are about $59 per barrel (20 percent below current levels). The increase in fuel prices has lifted headline inflation in advanced and emerging market economies. \n", "\n", "while the euro, Japanese yen, and British pound sterling are broadly unchanged.\n", "\n", "In some euro area countries, policy inaction and political shocks at the national level could lead to sovereign spread decompression, worsening public debt dynamics and weakening bank balance sheets. In China, where the authorities are taking welcome steps to slow credit growth, uncoordinated financial and local government regulatory action could have unintended consequences that trigger disorderly repricing of financial assets, increase rollover risks, and lead to stronger-than-forecast negative effects on activity.\n", "\n", " \n", "\n", "In the early 2000s 11 western European countries adopted the euro as their com mon currency. The adoption of the euro was followed not by strong growth, but by stagnation and recession. European unemployment rates mounted toward 10 per cent between 2000 and 2004, and real GDP growth for the euro zone was rarely above 2 percent per year. There was certainly room for economic expansion in Europe: Consumer prices were rising at less than 2 percent per year. The challenge for European economic policy remains one of avoiding rises in inflation while attempting to reduce western Europe’s distressingly high and stubborn rate of unemployment, yet interpreting the European Central Bank’s actions as part of any policy intended to try to meet that challenge remains difficult.\n", "However, for the first time in decades Europeans were hopeful that the next decade would bring a reduction, not an increase, in unemployment. Changes in policy are making the European labor market more flexible and in the long run should make it easier for firms to change the number of workers they employ, which should make it easier for workers to find jobs and thus lower unemploy ment. Most of western Europe is perhaps half a decade behind the United States in its adoption of data processing and data communications technology Thus there is good reason to hope that the information-technology-driven productivity growth acceleration experienced by the United States in the late 1990s should be visible in western Europe in the late 2000s.\n", "And in eastern Europe, economies continue to grow, as the long and slow process of “transition” away from communism has continued." ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "### 1.3.4 Japan\n", "\n", "The growth forecast for Japan has been marked down to 1.0 percent for 2018 (0.2 percentage point below the April WEO projection) following a contraction in the first quarter, owing to weak private consumption and investment. The economy is expected to strengthen over the remainder of the year and into 2019, aided by stronger private consumption, external demand, and investment.\n", "\n", " \n", "\n", "As of the end of 2004, Japanese interest rates remained astonishingly low — 0.03 per cent per year in the three-month money market — and were expected to remain low for the foreseeable future. Japan was still undergoing deflation, with consumer prices expected to fall by 1.0 percent in the next year.\n", "Fortunately, Japan was no longer in recession: The country had experienced six straight quarters of positive growth in real GDP. Although unemployment in Japan remained above 5 percent — an astonishingly high level for Japan — it was no longer increasing. There was good reason to believe that Japan’s decade-long expe rience with stagnation and recession was over, and that Japanese economic growth had resumed.\n", "The start of the 1990s saw the collapse of the Japanese stock and real estate markets, the end of the so-called bubble economy. The 1990s as a whole saw the breakdown of the Japanese model of economic growth, as the economy stagnated for much of the decade. Now there is a general recognition that Japan faces a structural economic crisis. But there is no political consensus as to what is to be done, and the major political steps that need to be taken to restore growth — restructuring the Japanese financial system and deregulating transportation and distribution — have been long delayed.\n", "The Bank of Japan is now pursuing a policy of making short-term safe nominal interest rates as close to zero as it can. But what matters for investment spending is not a low short-term safe nominal interest rate but a low long-term risky real interest rate, and that will remain high as long as bond traders fear that (1) the low-interest rate policy may be temporary, (2) many companies may go bankrupt and never repay the money they borrow, and (3) prices may decline more rapidly, turning low nominal interest rates into high inflation-adjusted real interest rates. For most of the 1990s and into the early 2000s, even interest rates near zero proved insufficient to boost investment." ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "### 1.3.5 China (NEW)\n", "\n", "performance, growing at 6.5 percent in\n", "2018–19. Growth in China is projected\n", "to moderate from 6.9 percent in 2017 to\n", "6.6 percent in 2018 and 6.4 percent in\n", "2019, as regulatory tightening of the\n", "financial sector takes hold and external\n", "demand softens. India’s growth rate is\n", "expected to rise from 6.7 percent in 2017\n", "to 7.3 percent in 2018 and 7.5 percent in\n", "2019, as drags from the currency\n", "exchange initiative and the introduction\n", "of the goods and services tax fade. The\n", "projection is 0.1 and 0.3 percentage\n", "point lower for 2018 and 2019,\n", "respectively, than in the April WEO,\n", "reflecting negative effects of higher oil\n", "prices on domestic demand and faster- than-anticipated monetary policy\n", "tightening due to higher expected • inflation.\n", "\n", "The big economic news is the enormous growth boom in China, which makes up more than one fifth of the human race. The Chinese economy was expected to grow at 8 percent and 6 percent in 2005. The pace of investment in China is blistering as its exports continue to expand: China consumes more than a quarter of the world’s steel and cement. China’s boom is driven by its manufacturing exports. \n", "\n", "In the case of China, the boom is further driven by an undervalued exchange rate. The Chinese government would rather sell its workers’ products cheaply than watch the value of its currency rise and risk high unemployment in its major cities. The Bank of China (along with other Asian central banks) buys up huge amounts of dollar-denominated assets every month in order to keep the value of the U.S. dollar from falling and the value of the Chinese yuan from rising. The U.S. gov ernment does not strongly object: Purchases by the Bank of China keep U.S. inter est rates from rising and allow the funding of the U.S. government budget deficit and of much U.S. private investment that could not be covered by America’s own small national saving." ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "### 1.3.6 Emerging Markets \n", "\n", "### 1.3.6 Emerging-market and developing economies\n", "\n", "Core inflation in emerging markets has also increased, reflecting pass-through effects from currency depreciation in some cases and second-round effects of higher fuel prices in others. \n", "\n", "While financial conditions remain generally benign, these factors have resulted in capital inflow reductions, higher financing costs, and exchange rate pressures, more acute in countries with weaker fundamentals or higher political risks. \n", "\n", "Commodity prices and inflation. Largely reflecting supply shortfalls, global oil prices increased 16 percent between February 2018 (the reference period for the April 2018 WEO) and early June 2018 (the reference period for the July 2018 WEO Update). In June, the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers agreed to raise oil production by about 1 million barrels per day from current levels, correcting the recent undershooting of the November 2016 group target. Market expectations suggest that declining capacity in Venezuela and US sanctions on Iran may pose difficulties for the group to deliver the agreed upon production increase consistently. Futures markets, however, indicate prices are likely to decline over the next 4–5 years (in part due to increased US shale production)—as of end-June, medium-term futures prices are about $59 per barrel (20 percent below current levels). The increase in fuel prices has lifted headline inflation in advanced and emerging market economies. \n", "\n", "Financial conditions in emerging markets. Central banks in key emerging market economies —including Argentina, India, Indonesia, Mexico, and Turkey—have raised policy rates, responding to inflation and exchange rate pressures (coupled with capital flow reversals in some cases). Long-term yields have also increased in recent months, and spreads have generally widened. Most emerging market equity indices have declined modestly, reflecting, in some cases, concerns about imbalances (e.g., Argentina and Turkey), and, more generally, rising downside risks to the outlook.\n", "\n", "In contrast, some emerging market currencies have depreciated sharply. The Argentine peso has weakened by over 20 percent and the Turkish lira by around 10 percent, due to concerns about financial and macroeconomic imbalances. The Brazilian real has depreciated by over 10 percent on a weaker-than-expected recovery and political uncertainty. Weaker-than-anticipated macroeconomic data for South Africa contributed to the 7 percent depreciation \n", "\n", "Emerging market and developing economies have experienced powerful crosswinds in recent months: rising oil prices, higher yields in the United States, dollar appreciation, trade tensions, and geopolitical conflict. The outlook for regions and individual economies thus varies depending on how these global forces interact with domestic idiosyncratic factors. \n", "\n", "Emerging and Developing Asia is expected to maintain its robust and anticipated trade measures1 are expected to be small, as these measures affect only a very small share of global trade so far. The baseline forecast also assumes limited spillovers to market sentiment, even if escalating trade tensions are an important downside risk.\n", "\n", "Oil exporters in the Middle East, North Africa, Afghanistan, and Pakistan region have benefited from the improved outlook for oil prices, but the outlook for oil importing countries remains fragile. Several economies still face large fiscal consolidation needs and the threat of intensifying geopolitical conflict continues to weigh on growth in the region. Growth is projected to strengthen from 2.2 percent in 2017 to 3.5 percent in 2018 and further to 3.9 percent in 2019—0.2 percentage point higher than in the April WEO for 2019.\n", "\n", "Elsewhere in the world, the big economic news is the substantial growth boom in India. Together with China, its population makes up 40 percent of the human race, Its economy was expected to grow at 6 percent in 2005. India’s boom is driven by investment for the internal market and by growing exports of business and other services to the world’s industrial core. \n", "\n", "As of the end of 2004, the financial crisis in East Asia of the past decade was only a distant memory. The panic that started in 1997 on the part of investors in New York, Frankfurt, London, and Tokyo, and the consequent withdrawal of their money from emerging market economies, imposed very high costs: mas sive bankruptcies, high interest rates, increases in unemployment, falls in pro duction. But foreign investors appear to have regained confidence in East Asian economies.\n", "However, the destabilizing factors in the world economy that made for the East Asian crisis of 1997-1998 are still present, as can be seen by the crash of the Argentinean economy at the end of 2001. Many argued that a critical cause of the East Asian crisis and, before it, the Mexican financial crisis was that the govern ments retained the ability to devalue and depreciate the currency and that that was a key source of the capital flight that rippled through their economies and set off the crises. Argentina, however, handed authority over its exchange rate to an independent organization — a “currency board.” Yet that did not help. When in 2001 investors in New York, Frankfurt, London, Tokyo, and elsewhere became worried that the Argentine government’s failure to balance its budget heralded a future of more rapid money printing and inflation, the same factors came into play. And the fact of Argentina’s currency board only meant that the crisis became more convoluted and difficult to resolve — it was still not resolved three years after its beginning.\n", "\n", "Elsewhere in Latin America as of 2005 growth continued to be positive, but disappointing. The Mexican government continued to wrestle with the problem of fixing its still-insolvent banking system. Brazil struggled under the burden of its large national debt and attempted to fulfill the hopes of growth with equity raised by the election of left-of-center president Luis Ignacio da Silva.\n", "The most disappointing areas of the world as far as economic growth was con cerned continued to be the Middle East and Africa." ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "### 1.3.7 The Current Macroeconomic Situation: Recap\n", "\n", "**Key Points**:" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "### 1.3.8 The Current Macroeconomic Situation: Exercises\n", "\n", "**Analytical Exercises**:\n", "\n", "\n", "----\n", "\n", "**Policy Exercises**:" ] } ], "metadata": { "kernelspec": { "display_name": "Python 3", "language": "python", "name": "python3" }, "language_info": { "codemirror_mode": { "name": "ipython", "version": 3 }, "file_extension": ".py", "mimetype": "text/x-python", "name": "python", "nbconvert_exporter": "python", "pygments_lexer": "ipython3", "version": "3.6.1" } }, "nbformat": 4, "nbformat_minor": 2 }