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11/14/2021

Comments

Sarah Beaube

To be quite honest, there were fair amounts of this paper that I struggled to understand and grasp. I haven't ever really engaged with a lot of the technical things that this paper discusses, so I found it somewhat dense and hard to understand -- as it seems most of my peers did too. From what I did grasp, at a basic level, this article relayed the importance of inter-country connections and how each country's financial actions can influence another's. Namely, the US has immense market power to dictate how other markets do. I think a class discussion will really help me sort out this paper and what the main points are.

Tommy MacCowatt

This paper goes into great detail about the impact of interest rates in developed, industrial countries on developing markets. As others have mentioned, I also found this paper quite difficult to grasp but very informative. The correlation between US interest rates and the level of investment in developing nations is evident. Latin America saw an influx of capital in the early 1990s when they made fiscal reforms through the Brady Plan. During this same period, the US short term interest rate fell almost 50 percent and resulted in an increase of 4 percentage points to GDP in Latin America. The best explanation for this correlation is that investors see the low interest rate in the US as useless and look for other opportunities to invest. Targeting developing markets allows investors a chance at higher returns without investing a ton of capital. With interest rates extremely low, investors see no reason to keep their money in the US and outsource their capital to other markets.

Matt DiTondo

As my other classmates have said, I found this piece to be really dense and somewhat hard to comprehend. While I know a little about international finance from the class on Money and Banking, I still found this essay relatively difficult to digest. One finding I found interesting was the necessity of looking at both the supply and demand sides of the equation. Typically in Money and Banking (and to a lesser extent Macro) we looked market interest rates as the only input.

Mary Wilson Grist

The biggest takeaway from this paper is the profound impact that countries have on each other’s decisions to borrow and invest. I enjoyed reading the section about lending in the 1920s and the debt crisis of the 1930s. Central Europe and Latin America needed reconstruction and reform, and capital from the United States was attracted to these economies. In addition to motives by inflation stabilization and restoration of gold conversion, there were certainly other incentives for Americans to invest abroad. The Federal Reserve maintained low interest rates to encourage American investors to invest abroad. Then by 1928, the Fed raised the rates to deter the excessive stock speculation.
This anecdote made me think about the ways we could incentivize Americans to invest abroad in developing countries that could use a big push to jump start healthcare, education and infrastructure developments. Does the Fed still have this kind of power to incentivize foreign investment, and does it only apply to developed countries? I am sure that I am grossly oversimplifying this, but I was curious about ways we could incentivize this kind of foreign investment today.

Yuhan Liu

Although I did not fully understand the methodology employed in this paper, I find it quite clever and meaningful that the authors found a way to include the decision of developing country borrowers to take on debt instead of focusing exclusively on the lenders’ willingness to lend. With this addition, the paper adds to the existing literature on interest rate in the north and capital flow to the south and confirms that higher interest rates in the north have a negative impact on the market for developing country debt. The finding of this paper is significant because it disproves the narrative presented in the Washington Consensus that the low-income countries can regulate inflows through fiscal discipline. Revealing the vulnerable nature of the emerging market to the influence of northern financial market influence should make wealthy countries pause and reexamine their role and responsibilities in the global market. Moreover, the finding also brought questions to the neoliberal principles of Washington Consensus and their applicability. Things I didn’t quite understand when reading this paper are why and how equations 1 and 2 are joined by “maximum likelihood,” and what is the exact meaning/role of “spread” in this analysis.

A Facebook User

I found it interesting how interest rates can affect a lot of countries and what a huge role in can play in development and eliminating poverty. To be honest I was very confused by this paper but look forward to discussing it more in depth in class

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