Outgoing associate director Menzie Chinn has won a $10,000 grant from the University of Wisconsin–Madison Center for World Affairs and the Global Economy to pursue his research on the determinants of how fast current account balances adjust. The grant also will support a graduate student.
The world economy is characterized by large current account imbalances. Even as of 2008, the United States was running a deficit of nearly 4.6 percent of GDP, after declining from a peak of 6 percent at the end of 2004. On the other side, China is running a large surplus. In this study, Chinn will investigate which economic factors (openness to trade and financial flows) and policies (exchange rate regimes, capital controls) determine the pace at which current account balances and real exchange rates adjust.
A current-account deficit occurs when the value of a country's imports is greater than the combined value of exports and net income from abroad. The current-account deficit is a broader measure than a country's trade deficit because, in addition to imports and exports, it includes income from assets abroad after payments for liabilities owed to foreigners are subtracted out.
With Yin-Wong Cheung and Eiji Fujii, Chinn is the author of The Economic Integration of Greater China: Real and Financial Linkages and the Prospects for Currency Union (Hong Kong University Press, 2007). He was a principal investigator with Charles Engel on the Current Account Sustainability collaborative at the University of Wisconsin-Madison.
Chinn has been cited in the news media several times in recent months. He noted that high interest rates are more dangerous than inflation. "'America is a big net debtor to the rest of the world, with extremely large holdings of U.S. Treasuries by foreign private and state actors,'" Chinn told the Globe and Mail in a June 3 article. The Christian Science Monitor cited Chinn's prediction that consumers won't spend freely for five years, and similar comments were twice quoted in USA Today. The Wall Street Journal also picked up his entries about the collapse of international trade and the durability of the dollar's role as the preeminent international currency from the Econbrowser blog he writes on (with UCSD professor James Hamilton).
Chinn is working on a book with Harvard professor Jeffry Frieden on the causes and consequences of the unfolding financial and economic crisis.
La Follette School faculty affiliate Ian Coxhead also won $10,000 WAGE grant to study Africa's manufacturing industries. Coxhead will examine how firms respond to the lower tariffs and transportation costs that accompany greater integration with the global economy.
Bernanke raises alarm on spending, June 3, 2009, Globe and Mail
10 ways the new economy will look different, April 10, 2009, Christian Science Monitor
U.S. may face years of sluggish economic growth, updated May 8, 2009, USA Today
Ingenuity saves city, state jobs as budgets shrink, April 13, 2009, USA Today
Secondary Sources: Banks, Trade, Lie to Me, May 5, 2009, Wall Street Journal