Benn Steil

Geo-Graphics

A graphical take on geoeconomic issues, with links to the news and expert commentary.

The New Geo-Graphics iPad Mini Index Should Calm Talk of Currency Wars

by Benn Steil and Dinah Walker Thursday, June 27, 2013

The “law of one price” holds that identical goods should trade for the same price in an efficient market.  To what extent does it hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonalds’ burgers around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued.  The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose.  Yet it travels badly – cross-border flows of burgers won’t align their prices internationally. Read more »

Is the Fed Right to Calibrate Asset Purchases to Economic Data?

by Benn Steil and Dinah Walker Wednesday, May 29, 2013
recalibration

The Fed is trying to have its cake and eat it too. Having earlier tried to anchor market expectations of future low interest rates by pledging that policy would remain accommodative into 2015, Fed Chairman Ben Bernanke is now saying that the Fed will consider “a recalibration of the pace of its [asset] purchases . . . in light of incoming information.” Read more »

Can China’s Bond Market Support a Global RMB?

by Benn Steil and Dinah Walker Tuesday, May 21, 2013
RMB

On April 24, the Australian central bank announced that it would raise the proportion of its reserves devoted to Chinese financial assets from 0% to 5%, likely among the highest such allocations among world central banks.  Will other major central banks follow suit? Read more »

Eric Rauchway Battles “The Battle of Bretton Woods”

by Benn Steil and Dinah Walker Monday, April 29, 2013
Don Quixote, courtesy of the Biblioteca de la Facultad de Derecho y Ciencias del Trabajo Universidad de Sevilla. Don Quixote, courtesy of the Biblioteca de la Facultad de Derecho y Ciencias del Trabajo Universidad de Sevilla.

Benn’s new book The Battle of Bretton Woods has been called “the gold standard on its topic” by the New York Times, “a triumph of economic and diplomatic history” by the Financial Times, and “a superb history” by the Wall Street Journal.  But Eric Rauchway is having none of it.  He’s dinged the book twice now, its only two negative reviews—first for the IMF’s Finance & Development and then, in an extended dance remix version, for the TLS. Read more »

Draghi’s Dilemma

by Benn Steil and Dinah Walker Friday, April 26, 2013
ecb rate vs national rates and inflation

The Governing Council of the European Central Bank meets on May 2, with a possible rate cut in the offing. Yet a rate cut is not the no-brainer the Bank’s critics often suggest, as today’s Geo-Graphic shows.

The ECB’s official inflation-rate target is “below, but close to, 2%.” Both Portugal and Greece have inflation under 1% , but the transmission mechanism from ECB rates to business borrowing rates in those two countries has been virtually severed by the crisis. In short, they need a rate cut, but the ECB can’t deliver them one. Read more »

Beware Friendly Fire in the Currency Wars

by Benn Steil and Dinah Walker Monday, April 1, 2013
imports and inflation

Prominent economic commentators have argued the cases for significantly weaker currencies in each of the world’s major economies – in particular, the United States, the eurozone, Japan, and the UK. As these four economies represent over half of the global economy, it’s clear that they can’t all accomplish this feat. It’s also far from clear that they should all want to. Read more »

Why Easy Money Is Not Enough: U.S. vs. the Eurozone

by Benn Steil and Dinah Walker Wednesday, March 20, 2013
unemployment dispersion

European Central Bank president Mario Draghi has promised to do “whatever it takes to preserve the euro,” and the bank’s Outright Monetary Transactions initiative last September, aimed at pulling down crisis-country bond rates, no doubt calmed market fears of a eurozone breakup. But whereas eurozone sovereign bond spreads have narrowed, the gap in real economic performance – particularly unemployment – between the best and worst performers, as shown in today’s Geo-Graphic, has continued to grow precipitously. Compare this to the United States, which has a fiscal and banking union as well as a monetary one. There, jumps in unemployment rate dispersion across states caused by financial and other shocks are reversed in relatively short order. Read more »

Dr. Strangelove or: How China Learned to Stop Worrying and Love the Dollar

by Benn Steil and Dinah Walker Thursday, February 21, 2013
currency wars

China has since 1994 operated some form of currency peg, harder or softer, between its yuan and the U.S. dollar. While China’s state-run Xinhua news agency has in recent years railed against U.S. management of the dollar, and has called for “a new, stable, and secured global reserve currency,” this week’s Geo-Graphic illustrates why China has little incentive to press for such a thing. Read more »