Macro Economy

Macro Economy Proceedings, Issue No. 5, February 2010 (PDF: 1744kb)

Contents:

The U.S. EXTERNAL DEFICIT: A SOFT LANDING, DOOMED OR DELAYED?

BARRY BOSWORTH AND SUSAN M. COLLINS

This paper explores how the external balance of the United States might evolve as the economy emerges from the recession. The authors examine the issue both from the domestic perspective of the saving and investment balance and from the external side in terms of the determinants of exports and imports and the role of the real exchange rate. They highlight the need for sustained depreciation of the dollar to improve the competitiveness of U.S. exports and argue that the current real exchange rate is consistent with a significant reduction in the U.S. trade deficit. The favorable external outlook, however, is inconsistent with a projected domestic situation of low rates of private saving and a large public sector budget deficit matched by a cyclically depressed rate of investment. A recovery of investment is likely to be accompanied by a widening of the current account deficit.

PROSPECTS FOR PROMOTING CHINA'S INTERNAL DEMAND: SOME ISSUES CALLING FOR CLARIFICATION

LU GANG

LU's paper addresses concerns that the measures which China took in response to the global economic and financial crisis may impede or negate its long-term transition to an economy more driven by domestic demand. He argues that greater domestic demand remains a goal and that some anti-crisis spending measures can even be seen as facilitating the transition. Nevertheless, China cannot be expected to complete the transition in the coming 3-5 years given its current levels of per capita income, industrialization, and urbanization. Finally, even in the crisis climate, China continues to encourage outward investment as part of its plan to realize a new basis for economic development.

A SEARCH FOR POTENTIAL FEMALE LABOR FORCE IN JAPAN'S AGING SOCIETY

MASAKI KUWAHARA

Japan's low rate of female labor force participation is widely known. At the same time, in 2008, more than three million Japanese women reported that they wished to work but were not in the labor market. Kuwahara examines this pool of potential female workers as one remedy for the labor shortage that Japan is expected to face as its population continues to age. A policy emphasis on providing sufficient daycare services could allow some of these women to work and care for their families at the same time. Reviewing data on fertility and labor force participation, along with demand for and supply of daycare, this paper uncovers some surprising trends. While the reasons behind the trends are not clear, they suggest that Japanese women have been moving in a direction more beneficial to the economy. Policies should support these current trends.