Business Review

First Quarter 2013

The collapse and rebound in U.S. international trade from 2008 to 2010 was quite stunning. Over this period, the fluctuations in international trade were bigger than the fluctuations in either production of or expenditures on traded goods. These relatively large fluctuations in international trade were surprising to some, since international trade had been growing at a very fast pace for quite a long time. They were equally surprising for trade theorists, since these movements in trade arise in standard models of international trade only when the costs of international trade rise and fall substantially. In “The Great Trade Collapse (and Recovery),” (403 KB, 9 pages) George Alessandria places these recent fluctuations in international trade in historical context. He then considers some explanations for the relatively large fluctuations in trade related to the nature of trade, protectionism, and financial constraints.

A balanced budget amendment is a constitutional rule requiring that the government collect enough revenue to finance its expenditures every year. The motivation for introducing such a rule is the desire to restrict deficit spending and limit increases in government debt. However, policymakers strongly disagree about the rule’s coverage and provisions. In particular, they disagree on how to define the terms revenue and expenditures and under which conditions exceptions to the rule should be allowed. In “The Political Economy of Balanced Budget Amendments,” (462 KB, 9 pages) Marina Azzimonti provides an overview of the arguments raised by proponents and opponents to the balanced budget amendment, emphasizing its economic consequences. She then describes recent findings in the academic literature that analyze the impact of similar rules at the state level. Finally, she summarizes theoretical findings that aim to compute the impact of a balanced budget rule on economic and policy variables, together with its effects on consumers’ welfare.

The financial crisis of 2007–2008 left in its wake new responsibilities for regulators to monitor the economy for risks to financial stability. The new task of monitoring financial stability includes tracking the risks of financial instruments and learning where these risks are located within the financial marketplace. One way to do this is to track the quantities of financial instruments and which institutions hold them. In “What You Don’t Know Can Hurt You: Keeping Track of Risks in the Financial System,” (193 KB, 9 pages) Leonard Nakamura discusses some limitations of the current data and the current data framework and the extent to which we can use the Flow of Funds for understanding and monitoring the risk of the broad range of financial instruments, focusing on residential mortgages as an example.

See also the latest issue of Research Rap. (105 KB, 3 pages)

Last updated: March 7, 2013

Business Review

First Quarter 2013

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