Monthly Archives: April 2011

Migration Alternatives

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The migration discussion in industrialized countries (aka, the discuss of how to keep immigrants out to protect domestic wages) often forgets to notice that capital is mobile. The WSJ reports how US firms respond to employment cost differentials at home and abroad. Examining capital and labor flows in isolation is not helpful as the two are intimately linked.

Use the Heckscher Ohlin model, making use of the Rybczynski Theorem to analyze the effect of such captial flows on domestic and foreign wages.


Capital Flows

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As the IMF finally comes around to realize that unfettered capital flows may not be optimal policy for all countries at all times, not all countries agree that the new IMF stance is appropriate. 

At the same time, China is moving in to the opposite direction – well somewhat. The Chinese capital account has been one of the most tightly regulated, which is about to change – slightly, as the WSJ reports. This is a good exercise to see how policy effectiveness in China are going to change in the Mundell Fleming model with fixed exchange rates! 

Straight From the Oracle: Italy Is The Threat

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Ok, Portugal is a done deal, now people start hand wringing whether Spain is next. Bob Mundell, "Father of the Euro" or better known as the creater of the "Mundell Fleming Model" has been warning for a while that Greece, Ireland, Portugal, and Spain are trivial compared to a potential crisis in Italy. Let's start watching the risk premium on Italian goverment debt. It sounded far out in 2010, today it is an uncomfortable reality.

The Portuguese Package

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As expected (but long virgerously denied by the Portuguese government), Portugal needs a bailout from the EU to maintain its fixed exchange ratet.  As usual, the past estimates were low: currently the current package has risen to $113 billion… The WSJ reports a few hours later that its closer to $126 billion…Things are starting to get interesting. Some has noticed that Spain will be next – recall that most of Portuguese debt is held by Spain…)