Publications by Date

Frankel J. The Euro Crisis: Where to From Here?. Journal of Policy Modeling. 2015;37 (3) :428-444. eurofutureaea2015jpm.docx
Frankel J. The Plaza Accord, 30 Years Later, in Conference on the Plaza Accord at the Baker Institute for Public Policy. Rice University ; 2015. bakerplaza30thhouston2015.docx
Frankel J. Program Report. International Finance and Macroeconomics, National Bureau of Economic Research [Internet]. 2015;(2). Link
Frankel J. Become an International Economist, See the World. In: Ramrattan L, Szenberg M Eminent Economists II . Cambridge University Press ; 2014.
Frankel J. Nominal GDP Targeting for Middle-Income Countries. Central Bank Review [Internet]. 2014;14 (3) :1-14. LinkAbstract
It has been proposed that central banks should target Nominal GDP (NGDP), as an alternative to targeting the money supply, exchange rate, or inflation. But the proposal appears in the context of the largest advanced economies. In fact NGDP Targeting may be more appropriate for middle-sized middle-income countries. The reason is that such countries are more often subject to large supply shocks and terms of trade shocks. Such unexpected shocks can force the credibility-damaging abandonment of CPI targets or exchange rate targets that had been previously declared. But they do not require the abandonment of a nominal GDP target, which automatically divides an adverse supply shock equally between impacts on inflation and real GDP. The argument can be illustrated in a model where the ultimate objective is minimizing a quadratic loss function in output and inflation but a credible rule is needed in order to prevent an inflationary bias that arises under discretion. A NGDP rule dominates IT unless the Aggregate Supply curve is especially steep or the weight placed on price stability is especially high. Parameters estimated for the cases of India and Kazakhstan suggest that the Aggregate Supply curve is flat enough to satisfy the necessary condition. The general argument applies regardless whether the monetary authorities at a particular time seek credible disinflation, credible reflation, or simply a credible continuation of the recent path.
Frankel J, Bosetti V. Sustainable Cooperation in Global Climate Policy: Specific Formulas and Emission Targets. Climate Change Economics [Internet]. 2014;5 (3). Link
Frankel J. Effects of Speculation and Interest Rates in a "Carry Trade" model of Commodity Prices. Journal of International Money and Finance. 2014;42 :88-112. commodityprices2013imf.doc
Frankel J, Végh C, Vuletin G. On Graduation from Fiscal Procyclicality. Journal of Development Economics 100. 2013;100 (1) :32-47.Abstract

In the past, industrial countries have tended to pursue countercyclical or, at worst, a-cyclical fiscal policies in sharp contrast to emerging and developing countries that have followed procyclical fiscal policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about a third of the developing world has been able to escape the procyclicality trap and actually become countercyclical. We trace this critical shift in fiscal policy to the quality of institutions. We provide a formal analysis, which controls for the endogeneity of institutions and other determinants of fiscal procyclicality, that strongly suggests that there is a causal link running from stronger institutions to less procyclical or countercyclical fiscal policy.

Frankel J. A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile. In: Céspedes LF, Galí J Fiscal Policy and Macroeconomic Performance. Vol. 17. Santiago: Central Bank of Chile ; 2013. pp. 323-391. Publisher's VersionAbstract

     Historically, many countries have suffered a pattern of procyclical fiscal policy: spending too much in booms and then forced to cut back in recessions. This problem has especially plagued Latin American commodity exporters. Since 2000, fiscal policy in Chile has been governed by a structural budget rule that has succeeded in implementing countercyclical fiscal policy. Official estimates of trend output and the 10-year price of copper – which are key to the decomposition of the budget into structural versus cyclical components – are made by expert panels and thus insulated from the political process. Chile’s fiscal institutions hold useful lessons everywhere, but especially in other commodity exporting countries.

     This paper finds statistical support for a series of hypotheses regarding forecasts by official agencies that have responsibility for formulating the budget. 1) Official forecasts of budgets and GDP in a 33-country sample are overly optimistic on average. 2 )The bias is stronger at longer horizons 3) The bias is greater among European governments that are politically subject to the budget rules.  4) The bias is greater in booms. 5) In most countries, the real growth rate is the key macroeconomic input for budget forecasting. 6) In Chile it this the real price of copper. 7) Chile has avoided the problem of overly optimistic official forecasts. The conclusion: official forecasts tend to be overly optimistic, if not insulated from politics, and the problem can be worse when the government is formally subject to budget rules. The key innovation that has allowed Chile to achieve countercyclical fiscal policy in general, and to run surpluses in booms in particular, is not just a structural budget rule in itself, but a regime that entrusts to independent expert panels responsibility for estimating long-run trends in copper prices and GDP. 

chilebudgetrules2011.doc ChileBudgetNBERwp16945.pdf
Frankel J. The Future of the Currency Union, in The Challenges of the Euro Crisis. Vol Academic Consultants Meeting. Board of Governors of the Federal Reserve System: Harvard Kennedy School ; 2013. Publisher's VersionAbstract

This note attempts a concise yet comprehensive overview of the crisis still facing the eurozone, in the areas of competitiveness, fiscal policy, and banking.  The euro’s founding documents enshrined such principles as fiscal constraints, the “no bailout clause,” and assignment to the ECB of the goal of low inflation to the exclusion of monetizing national debts.  Those principles have been permanently compromised.  On the one hand, German taxpayers cannot be expected to agree to bailouts of profligate euro members without end.  On the other hand, if they were to insist on those founding principles, the euro would not survive.  It is especially important to recognize that the (predictable) impact of fiscal austerity has been to reduce output in the periphery countries, not raise it, and thereby to raise debt/GDP ratios, not lower them.   The leaders have finally taken some steps in the right direction over the last year:  movement toward a banking union; more adjustment time for Greece, Portugal and Spain; and ECB bond purchases.  But much adjustment still lies ahead: more debt-reduction (painful for the creditor North) and more internal devaluation (even more painful for the uncompetitive South).  The eurozone will endure, but through a lost decade of growth.  As to a long-run fiscal regime that addresses the now-exacerbated problem of moral hazard, the Fiscal Compact is not enough in itself.   Two innovations favored by the author are the red-bonds/blue-bonds proposal and the delegation of forecasting to independent fiscal agencies.

Schreger J. Over-Optimistic Official Forecasts and Fiscal Rules in the Eurozone. Review of World Economy . 2013;149 (2) :247-272. fschregerfiscalforecasteurorowe2013.doc
Frankel J. Product Price Targeting -- A New Improved Way of Inflation Targeting. MAS Monetary Review. 2012 :2-5. pptsummary2012mas.doc
Frankel J. What Small Countries Can Teach the World. Business Economics. 2012;47 (2) :97-103.Abstract
In the past, various great powers have taken the stage as models of economic and social development.  They are not the only models, however. Much can be learned from small countries which are often free to experiment with new institutions and new policies. This paper describes specific lessons that can be learned from such countries..
rwp12-013_frankel_1.pdf smallcountriesteachworld_georgian.pdf
Frankel J. Internationalization of the RMB and Historical Precedents. Journal of Economic Integration. 2012;27 (3) :329-365. rmbinterntlznjei2012_1.doc
Frankel J. Choosing an Exchange Rate Regime. The Handbook of Exchange Rates. 2012. exrateregimesmarshsarnohndbk2011_1.doc
Frankel J, Parsley D, Wei S-J. Slow Passthrough Around the World: A New Import for Developing Countries?. Open Economies Review [Internet]. 2012;23 (2) :213-251. Publisher's Version
Frankel J, Saravelos G. Are Leading Indicators Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Financial Crisis. Journal of International Economics [Internet]. 2012;87 (2) :216-231. Publisher's Version
Engel C, Forbes K, Frankel J. Global Financial Crisis.; 2012. Publisher's Version
Frankel J. Economic Shocks and Their Implications for International Politics. Survival [Internet]. 2012;(3). Publisher's Version
Frankel JA. Chile's Countercyclical Triumph. Foreign Policy [Internet]. 2012;(June). Publisher's Version