This link has been bookmarked by 5 people . It was first bookmarked on 19 Jun 2008, by Zhuu Ming Ang.
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19 Jun 08
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But as the Federal Reserve has slashed US interest rates, the tensions in the trinity have increased. Low US rates raise the attractiveness of capital flows to Asia, putting upward pressure on exchange rates. The result has been that Asian central bankers – often with an eye on not exacerbating currency tensions – have been less than aggressive in dealing with inflation. In effect, they have imported loose monetary conditions from the US.
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The main concern across the region was how the credit crisis on both sides of the North Atlantic would hurt Asia’s export-driven economies. The expectation was that the effects of a US and European slowdown would be mitigated by growing demand within Asia and, in any case, that weakening demand elsewhere would keep the lid on price pressures. Inflation, not lower US consumer demand, has proved to be the biggest external shock for Asian economies. With inflation’s relentless rise has come the fear that Asian governments lack the ability – and more importantly the political will – to stop higher domestic and imported prices from devastating their economies. A standard economic theory dating back to work by Robert Mundell, a Nobel prize-winning economist, suggests an “impossible trinity” in economic policy. No country can simultaneously have freely flowing capital and control of both the exchange rate and monetary policy. For the rest of the world the potential outcomes are just as worrying. While trade imbalances would narrow in a world of high Asian inflation that reduced the region’s competitiveness, that would also add to the price pressures in the US and Europe, adding to the squeeze on real income levels under way. the risk is a new global stagflation – the combination of economic stagnation with high inflation – and one that is “made in Asia”.
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The main concern across the region was how the credit crisis on both sides of the North Atlantic would hurt Asia’s export-driven economies. The expectation was that the effects of a US and European slowdown would be mitigated by growing demand within Asia and, in any case, that weakening demand elsewhere would keep the lid on price pressures. Inflation, not lower US consumer demand, has proved to be the biggest external shock for Asian economies. With inflation’s relentless rise has come the fear that Asian governments lack the ability – and more importantly the political will – to stop higher domestic and imported prices from devastating their economies. A standard economic theory dating back to work by Robert Mundell, a Nobel prize-winning economist, suggests an “impossible trinity” in economic policy. No country can simultaneously have freely flowing capital and control of both the exchange rate and monetary policy. For the rest of the world the potential outcomes are just as worrying. While trade imbalances would narrow in a world of high Asian inflation that reduced the region’s competitiveness, that would also add to the price pressures in the US and Europe, adding to the squeeze on real income levels under way. the risk is a new global stagflation – the combination of economic stagnation with high inflation – and one that is “made in Asia”.
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The main concern across the region was how the credit crisis on both sides of the North Atlantic would hurt Asia’s export-driven economies. The expectation was that the effects of a US and European slowdown would be mitigated by growing demand within Asia and, in any case, that weakening demand elsewhere would keep the lid on price pressures. Inflation, not lower US consumer demand, has proved to be the biggest external shock for Asian economies. With inflation’s relentless rise has come the fear that Asian governments lack the ability – and more importantly the political will – to stop higher domestic and imported prices from devastating their economies. A standard economic theory dating back to work by Robert Mundell, a Nobel prize-winning economist, suggests an “impossible trinity†in economic policy. No country can simultaneously have freely flowing capital and control of both the exchange rate and monetary policy. For the rest of the world the potential outcomes are just as worrying. While trade imbalances would narrow in a world of high Asian inflation that reduced the region’s competitiveness, that would also add to the price pressures in the US and Europe, adding to the squeeze on real income levels under way. the risk is a new global stagflation – the combination of economic stagnation with high inflation – and one that is “made in Asiaâ€.
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The main concern across the region was how the credit crisis on both sides of the North Atlantic would hurt Asia’s export-driven economies. The expectation was that the effects of a US and European slowdown would be mitigated by growing demand within Asia and, in any case, that weakening demand elsewhere would keep the lid on price pressures. Inflation, not lower US consumer demand, has proved to be the biggest external shock for Asian economies. With inflation’s relentless rise has come the fear that Asian governments lack the ability – and more importantly the political will – to stop higher domestic and imported prices from devastating their economies. A standard economic theory dating back to work by Robert Mundell, a Nobel prize-winning economist, suggests an “impossible trinity†in economic policy. No country can simultaneously have freely flowing capital and control of both the exchange rate and monetary policy. For the rest of the world the potential outcomes are just as worrying. While trade imbalances would narrow in a world of high Asian inflation that reduced the region’s competitiveness, that would also add to the price pressures in the US and Europe, adding to the squeeze on real income levels under way. the risk is a new global stagflation – the combination of economic stagnation with high inflation – and one that is “made in Asiaâ€.
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18 Jun 08
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