Causes and Impacts of the Crisis
Feng Lu (NSD & CCER, PKU): China and the Financial Crisis
Deborah Lucas (NBER & Northwestern): Measuring and Managing Governmental Financial Risk
David Li (SEM, Tsinghua): The International Monetary System
Exchange Rates and Prices
Charles Engel (NBER & Wisconsin-Madison): Exchange Rate Policies (NBER Working Paper No.
Engel examines optimal monetary policy in an open-economy two-country model with sticky prices. He shows that currency misalignments are inefficient and lower world welfare. Optimal policy must target not only inflation and the output gap, but also the currency misalignment, he finds. However, the interest rate reaction function that supports this targeting rule may involve only the CPI inflation rate. Thus, examination of "instrument rules" may hide important trade-offs facing policymakers that are incorporated in "targeting rules." The model here is a modified version of Clarida, Gali, and Gertler's (JME, 2002) -- the key change is that Engel allows pricing to market or local-currency pricing and considers the policy implications of currency misalignments. Besides highlighting the importance of the currency misalignment, his model provides a rationale for targeting CPI, rather than PPI, inflation.
Fan He (CASS): Chinas Exchange Rate Regime
David Weinstein (Columbia): Variety, Prices, and Welfare: Macroeconomic Lessons from Micro-data
Economists have long known the importance of focusing on real as opposed to nominal variables in order to understand a wide range of economic outcomes such as growth, productivity, and welfare. While the distinction between real and nominal variables is simple in theory, in practice it is very difficult for statistical agencies to measure prices accurately. One of the main difficulties stems from the fact that the set of goods in the economy is constantly changing because of the creation of new goods and quality upgrading. Much of Weinsteins research over the last few years has focused on estimating the impact of new goods on our understanding of the U.S. and world economies. This approach combines microdata with a rich framework that allows the biases in the price measurement of individual goods to be aggregated over large sectors of the economy. In a series of papers emphasizing the macro implications of these micro biases, Weinstein suggests that, because trade provides consumers with new goods, we have underestimated the gains from globalization around the world over the last few decades. He estimates the aggregate CPI bias for a large set of goods to be close to 1 percentage point per year and to have a strong pro-cyclical component. The cyclicality of the bias suggests that business cycles are more pronounced than is typically reported in official statistics.
Financial Liberalization, Risks and Urbanization
Yiping Huang (NSD & CCER, PKU): China's Asymmetric Market Liberalization and Its Consequences
Todd Sinai (NBER & University of Pennsylvania): Assessing the Risks of Home Ownership
As the pendulum swings the other way in Americas love affair with houses, it has become fashionable to proclaim that home ownership is unbearably risky. Sinai considers whether volatility in home prices necessarily implies that home owning is riskier than renting. The answer can be no when changes in house prices offset changes in costs that households are likely to face, such as future housing or assisted living costs. Sinai provides evidence that effective house price volatility for owners, because the price changes are only on paper, can be less than the uncertainty over total rental costs. He also shows empirically that for many households, owning a home can help shield them from changes in the cost of obtaining housing in cities they might move to in the future. Finally, he speculates on why the public perception has focused on the riskiness of homeownership. He shows that risky housing finance high leverage on an asset with a volatile price is typically adopted by the subpopulation with the least hedging benefit from homeownership. He surmises that conventional wisdom fails to distinguish between the benefits of home ownership and the risks of housing leverage.
James Wen (SUFE and Trinity College): Urbanization in China
Labor and Health Issues
Chong-En Bai, Declining Shares of Labor Income in China
Dennis Yang, Virginia Tech University, Accounting for Rising Wages in China
Jonathan Skinner, NBER and Dartmouth College, Measuring Inefficiency in Health Care: A Global Perspective (NBER Working Paper No. 14257)
Skinner notes that the U.S. health care system is far different from the Chinese health care system, but that there are wide concerns with the efficiency of each system. Drawing on an earlier NBER Working Paper with Alan Garber of Stanford University, Skinner suggests that the challenges facing both countries with regard to productive efficiency -- that each dollar or yuan attain the best possible benefit in terms of health outcomes -- are similar, even if the magnitude of productive inefficiency is much larger in the United States. The difference between the two countries is more pronounced with regard to allocative inefficiency. In the United States, allocative inefficiency is pervasive because the health benefits from the very high levels of spending don't justify the 16 percent or more of GDP devoted to health care expenditures. In China, allocative inefficiency exists because of foregone opportunities to improve health outcomes with low-cost interventions, particularly among regions where efficient health innovations are particularly low, or where there is a lack of insurance for catastrophic health events. In either case, Skinner suggests, greater coordination of care could lead to first-order efficiency gains, whether through scaling back on spending or by improving health outcomes. That said, the political barriers to spending less on health care in the United States are daunting
Xiaoyan Lei, CCER, Health Issues of Retirees --- Evidence from a Recent Survey
Demography, Savings, and Economic Growth
Shang-Jin Wei, Sex Ratios, Savings Rate, and Entrepreneurship in China (NBER Working Paper No. 15093)
While the high savings rate in China has global impact, existing explanations are incomplete. Wei and Zhang propose a competitive saving motive as a new explanation: as the country experiences a rising sex ratio imbalance, the increased competition in the marriage market has induced the Chinese, especially parents with a son, to postpone consumption in favor of wealth accumulation. The pressure on savings spills over to other households through higher costs of house purchases. Both cross-regional and household-level evidence supports this hypothesis. This factor can potentially account for about half of the actual increase in the household savings rate during 1990-2007.
Yuyu Chen, PKU, Consumption and Savings of Chinese Urban Households
Yang Yao, CCER, Demographic Transition and Chinas Growth Model
Miaojie Yu, CCER, Trade Liberalization, Productivity, and Firm Heterogeneity
Pinelopi Goldberg, NBER and PrincetonUniversity, Effects of Patent Enforcement in Pharmaceuticals in Developing Countries
Under the Agreement on Trade-Related Intellectual Property Rights (TRIPS) countries must, as a condition for membership in the World Trade Organization, recognize and enforce patents in all fields of technology, including pharmaceuticals. Not surprisingly, the enforcement of this rule in developing countries generates considerable controversy: standard arguments contrast the potentially adverse effects of patent protection on the prices of drugs in low-income countries with the incentives of pharmaceutical companies to engage in technology transfer, FDI, and research in developing-country specific diseases. However, existing price controls and regulation make it unlikely that prices will rise, while the size of developing country markets is too small at present to change the research priorities of multinational pharmaceutical concerns. The most significant effects in the short and medium run are likely to be related to the distribution and marketing of new drugs in developing countries. Data from India suggest that new, FDA-approved products often get introduced in India by domestic firms, while multinational patent-holders enter the market later and at lower prices. Goldberg discusses potential explanations for this behavior of multinationals as well as its implications for the availability and distribution of new drugs in developing countries once patents are enforced. The speed and effectiveness of new drug distribution will depend on the extent to which TRIPS incentivizes multinationals to invest in distribution and marketing networks, joint ventures, and licensing arrangements with domestic firms in the developing world. In the absence of such investments, a case for compulsory licensing of new inventions may be warranted. Patent legislation in India is too recent to allow a meaningful empirical study of TRIPS effects at this time. China may provide an interesting setting for studying such effects, since it has a longer history of formal patent protection in pharmaceuticals, though the enforcement and effectiveness of existing legislation is in dispute.