As attested to by the large amount of coverage of the recent US-China Strategic and Economic Dialog [0] [1], [2], [3], [4],[5] China looms large in any discussion of the world economy. One of the most important contributors to the informed discussion on this subject was Brad Setser, at the Council on Foreign Affairs and before that at RGE Monitor. Unfortunately, Dr. Setser will be leaving the blogosphere, so his insights will be missed (although fortunately for us, he'll be adding his input at the NEC, where we all wish him well).

So now, there'll be even a greater need for reasoned analysis. One addition to the discussion is a Symposium on China's impact on the global economy just published in Pacific Economic Review (August 2009). From my introductory chapter to the symposium:

Over the past decade, China's presence

By Hiro Ito

Today, we're fortunate to have Hiro Ito, Associate Professor of Economics at Portland State University as a guest blogger.

In my last posting, I introduced a recent paper coauthored with Menzie Chinn and Joshua Aizenman (UC, Santa Cruz) on the "trilemma," or "impossible trinity" -- a country simultaneously may choose any two, but not all, of the three goals, monetary independence, exchange rate stability and financial integration.

In that paper, we introduced the indexes that measure each aspect of the three trilemma configurations for more than 170 countries in the period 1970 to 2006. Using these indexes, we have shown that major crises and economic events in the last four decades caused structural breaks in the trilemma configurations.

We also tested the linearity of the indexes and confirmed that countries do face the trade-off of the three policy choices. In short, we empirically found

Events, particularly these days, tend to outrun the best laid plans to anticipate research trends. And it might seem that this was true in the case of this conference, sponsored by UCSC's Santa Cruz Center for International Economics, the Journal of International Money and Finance, and the Federal Reserve Bank of San Francisco. The conference was planned last year, at a time when most academic researchers were aware and concerned about the incipient economic slowdown, and whether the major economies would "de-couple", and in turn how these factors would impact the constellation of global imbalances.

As it turns out, the papers were all, in my opinion, remarkably germane to issues we're concerned about right now: how the composition of debt determines vulnerability to crises, the effect of capital controls on capital flows, the role of the IMF, and the usefulness of macroeconometric models to predict exchange

By Hiro Ito

Today, we're fortunate to have Hiro Ito, Associate Professor of Economics at Portland State University as a guest blogger.

While the current global crisis does not show any sign of bottoming out, policy makers around the globe are reevaluating international macroeconomic policies and discussing the post-crisis future of the international financial architecture -- as we saw in the recent G20 meeting.

Whatever international macroeconomic policies policy makers discuss, conceptually, they cannot avoid confronting the concept of the "trilemma," a.k.a., the "impossible trinity". That is, as Figure 1 shows, a country simultaneously may choose any two, but not all, of the three goals, monetary independence, exchange rate stability and financial integration.

While it is conceptually powerful and widely taught, little work has been done to empirically prove whether the trilemma is "binding," or that countries do face trade-offs of the

Paul Kedrosky has observed that a statistical analysis (word cloud) of the American Economic Association session titles, or even of the papers, leads to the impression that the economics profession has been relatively uninterested in the ongoing financial and economic crisis. Unfortunately, this observation misses ignores the fact that session proposals are submitted a full eleven months ahead of the ASSA meetings. Think back to January 2008, and the terms ascribed to those who warned of a severe slowdown ("alarmist", etc.), and the whole discussion is cast in a different light.

Furthermore, the correlation between scheduled paper titles and actual is, shall we say, fairly loose. In any case, the main messages of the papers are usually discussed in the context of current events.

I'll illustrate this last point by discussing the only complete session I made it to (most of my time was spend interviewing job candidates): "The