investment, Meta Intelligence

China to Sustain Top-Down, Debt-Fueled Investment in Major Projects and Security Capacities, Ex-Official Says

Dong Yu, now at Tsinghua, says via state media that Beijing-decreed, central govt bond-backed construction will continue into the next five years.

[from the Center for China & Globalization’s Pekingology]

by Zichen Wang, 10 August, 2025

The key concept in today’s newsletter is 国家重大战略实施和重点领域安全能力建设, in abbreviation in Chinese as 两重 liǎng zhòng.

In English, it is translated officially as the implementation of major national strategies and building up security capacity in key areas, hereinafter referred to as “Two Major Undertakings.”

The concept first appeared in official policy documents in the Chinese Premier’s Report on the Work of the Government [archived PDF] in March 2024.

To systematically address funding shortages facing some major projects for building a great country and advancing national rejuvenation, it is proposed that, starting this year and over each of the next several years, ultra-long special treasury bonds be issued. These bonds will be used to implement major national strategies and build up security capacity in key areas. One trillion yuan of such bonds will be issued in 2024.

By the end of the year, the yuan tag, despite being approved by the national legislature, had changed by 300 billion. The People’s Daily newspaper reported in December 2024.

As of now, the 700 billion yuan in ultra-long-term special treasury bonds allocated for the “two major undertakings” has been distributed in three batches to specific projects.

In 2025, the following year, the Report on the Work of the Government [archived PDF] says,

A total of 1.3 trillion yuan of ultra-long special treasury bonds will be issued, 300 billion yuan more than last year.

735 billion yuan will be earmarked in the central government budget for investment. We will put ultra-long special treasury bonds to good use, increase ultra-long-term loans and other types of financing support, and strengthen top-down organization and coordination to ensure greater support for the implementation of major national strategies and security capacity building in key areas.

A simultaneous Finance Ministry budget plan [archived PDF] rounds up the overall central government spending for the Two Major Undertakings to 800 billion yuan in 2025.

In yuan terms, the much-touted new government subsidies to households pale in comparison with the two major undertakings.

Also from the 2025 Report on the Work of the Government [archived PDF]:

Ultra-long special treasury bonds totaling 300 billion yuan will be issued to support consumer goods trade-in programs. This represents an increase of 150 billion yuan over the previous year.

This week, China announced this week that the phased free preschool education policy will cover all children in their final year of kindergartens, saving families 20 billion yuan. Childcare subsidies unveiled in July amount to 90 billion yuan.

As Joe Biden repeated over the years,

Don’t tell me what you value. Show me your budget, and I’ll tell you what you value.

The National Development and Reform Commission said last month:

In 2025, a total of 800 billion yuan has been allocated for the “two major undertakings,” supporting 1,459 projects in key areas such as ecological restoration in the Yangtze River Basin, major transportation infrastructure along the Yangtze River, the New Western Land–Sea Corridor, high-standard farmland, major water conservancy projects, urban underground pipeline networks, the “Three-North” shelterbelt program, and the renovation of hospital wards.

Now that the 2025 money has been spent by July and China is drawing up its next Five-Year Plan for 2026-2030, will there be more such projects in the future?

In a column for the state-run China News Service this week, Dong Yu, previously Deputy Director-General of the Second Economic Bureau of the Office of the Central Financial and Economic Affairs Commission and, before that, an official at China’s National Development and Reform Commission (NDRC), pointedly said,

In the next step, during the formulation and implementation of the 15th Five-Year Plan, the “two major undertakings” will continue to occupy an important place, be organically incorporated into the new five-year plan, and form close alignment and sustained momentum with major national strategies, major plans, major projects, and key initiatives…

…Such a major strategy will be pursued with persistence—it will not remain rhetorical, nor will it be reversed abruptly.

He did not cite a source of information in his article.

Continuing with his lecturing style, Dong, now Executive Vice Director of China Institute for Development Planning, Tsinghua University, rebuked some unspecified market analysis that had observed the investments just were a one-time boost shot.

Some market institutions once analyzed that when China’s economy was facing short-term difficulties and challenges, the launch of the “two major undertakings” was mainly aimed at expanding investment in the short term to stabilize growth. Such a view clearly lacks a professional understanding of the decision-making intentions and logic, fails to properly grasp the relationship between the short term and the medium-to-long term, as well as between objectives and means, and inverts the proper order of priorities—a misconception that needs to be pointed out and corrected.

Dong also highlighted what he said was the unusual nature of the “strategic move,” including that central government debts fueled the investments, and they were selected “top-down,” rather than primarily relying on local government proposal or input.

The two undertakings were formally submitted for deliberation at the 2024 National People’s Congress after the central leadership made its decision and arrangements…

The central authorities have shown firm determination in this work, adopting the ultra-long-term special treasury bond—a macro policy tool that has rarely been used. Compared with several past issuances of special treasury bonds, the funding arrangement for the “two major undertakings” spans a longer cycle, has a broader scope of application, and will continue to advance in the next stage. It can be said that the scale and intensity are unprecedented. In 2024, a total of 700 billion yuan in ultra-long-term special treasury bonds was allocated, and in 2025, the figure is 800 billion yuan, all of which have now been fully disbursed.

The organization of the “two major undertakings” construction is top-down, completely different from the past practice in the investment sector where projects were determined through bottom-up applications. The purpose is to facilitate the smoother downward transmission of the needs of major national strategies. Relevant [central] government departments, by identifying shortcomings and weaknesses, specifying key areas, and refining project requirements, have ensured that the project list is no longer a collection of fragmented local items. Instead, projects are planned in an integrated manner by category and sector, with strengthened guidance for key regions, more targeted measures, and clearer standards.

Although an exhaustive list of the 1,459 projects does not appear to be available to the public, the “security capacity” build-up in the two major undertakings should be understood in broad terms, and Dong claims the investments put China on a sounder footing globally now that Donald Trump rules America again.

In recent years, the central authorities have emphasized security awareness and bottom-line thinking in development planning, a shift closely related to changes in the international situation. The closer China’s economy becomes intertwined with the global economy, the more comprehensive its considerations must be regarding issues such as food security, energy security, industrial security, and ecological security. The second “undertaking” in the “two major undertakings”—the strengthening of security capabilities in key areas—is precisely a forward-looking arrangement. The dramatic changes in the international environment since the beginning of 2025 have further underscored and confirmed the necessity of enhancing security capabilities, fully demonstrating that the central authorities’ thinking and deployment have been prescient and ahead of the curve.

Dong’s article via China News Service is fully translated below.

中央这一先手棋很不寻常

This Strategic First Move by the Central Authorities Is Highly Unusual

by Dong Yu, Executive Vice President, Institute for China Development Planning, Tsinghua University

The issuance of ultra-long-term special treasury bonds to support the implementation of major national strategies and the building of security capacities in key areas (hereinafter referred to as the “two major undertakings”) has become one of the hottest topics in China’s economy in recent years. Any observation of China’s present and future economic trajectory must include research and analysis of these two undertakings. More than a year has passed since the initiative was launched, making it both necessary and timely to evaluate its effectiveness, understand its operating mechanisms, and look ahead to its prospects.

The “Two Major Undertakings” Are by No Means Ordinary Policy Measures

In terms of decision-making background and process, as well as policy intensity and scope, the launch and implementation of the two major undertakings stand out from other policies. They represent a top-level design initiative.

Understanding a policy starts with its background. From the sequence of events leading to the proposal, this was a proactive, historic choice. The two undertakings were formally submitted for deliberation at the 2024 National People’s Congress after the central leadership made its decision and arrangements. The timing was significant: the 20th Communist Party of China National Congress had laid out a series of major long- and medium-term strategic initiatives that needed concrete engineering projects to push forward. China was midway through two Five-Year Plans, yet strategic advancement could not wait. The central leadership thus introduced the two major undertakings as a groundbreaking initiative.

Strategically, the undertakings directly address the needs of advancing long-term objectives. From the outset, they have been aimed squarely at the goals of Chinese modernization. By breaking down these goals into specific tasks and identifying the most difficult bottlenecks, the undertakings found their points of focus. Some of these tasks might take decades for other countries to achieve, but China has chosen not to delay—tackling them head-on at the starting stage of the new journey toward modernization. This model is uniquely Chinese and has been proven by history to be a key factor in China’s remarkable development successes.

The undertakings are also highly forward-looking—a “first move” by the central leadership. In recent years, national development planning has placed greater emphasis on security and on guarding the bottom line, in response to changes in the international environment. The closer China’s economy is linked to the global economy, the more comprehensive its considerations must be on food security, energy security, industrial security, and ecological security, and other issues. The second “major” in the initiative—security capacity building in key areas—is an arrangement made in anticipation of future challenges. The sharp changes in the international environment since 2025 have only highlighted and validated the necessity of strengthening security capacities, demonstrating that the central leadership’s thinking and arrangements were ahead of the curve.

The undertakings also have a strong overall and systemic quality, constituting a key move in macroeconomic governance. They focus on areas of outstanding importance to economic and social development and have a high degree of relevance to the overall development landscape. The policy toolkit they employ integrates investment, fiscal, science and technology, education, social, and ecological policies. This comprehensive package embodies the use of systems thinking to drive development and will significantly impact all aspects of the economy and society.

A Manifestation of Central Will

Extraordinary measures are for extraordinary tasks. The strategic objectives of Chinese modernization are long-term undertakings, and the two major undertakings provide the foundational support through systematic design and substantial funding.

The central leadership has committed to this initiative by adopting the rarely used macroeconomic tool of ultra-long-term special treasury bonds. Compared with previous special bond issuances, the funding for the two undertakings spans a longer cycle and serves a wider range of purposes, with plans for continued implementation. In both scale and intensity, this is unprecedented: 700 billion yuan in 2024 and 800 billion yuan in 2025, all of which has already been allocated.

In terms of priorities, it vividly reflects the principle of “concentrating resources to accomplish major undertakings.” The focus areas include urban–rural integration, regional coordination, high-quality population development, food security, energy and resource security, ecological security, and self-reliance and strength in science and technology—all crucial to building a strong nation and achieving national rejuvenation. These require coordinated planning and advancement. In just over a year, the high-level requirements have been translated into batches of concrete projects, reflecting the efficiency of implementation.

Project selection is guided by the principle that only the central government can resolve these issues. Some involve urgent development bottlenecks with significant obstacles that cannot be overcome by conventional means, such as scientific and technological breakthroughs, high-standard farmland construction, and upgrading the quality of higher education. Others are long-desired but previously unachievable projects that lack local willingness or capacity to implement, such as major cross-regional infrastructure, cross-basin wastewater treatment, and urban underground utility upgrades.

The organization of the “two major undertakings” construction is top-down, completely different from the past practice in the investment sector where projects were determined through bottom-up applications. The purpose is to facilitate the smoother downward transmission of the needs of major national strategies. Relevant [central] government departments, by identifying shortcomings and weaknesses, specifying key areas, and refining project requirements, have ensured that the project list is no longer a collection of fragmented local items. Instead, projects are planned in an integrated manner by category and sector, with strengthened guidance for key regions, more targeted measures, and clearer standards.

A Combination of “Hard” and “Soft” Measures

From the start, the undertakings were designed not only to fund “hard” engineering projects but also to include comprehensive arrangements for “soft” institutional and policy measures—an important innovation.

The emphasis on soft measures is pragmatic. Given the high importance and public nature of the projects, long-term mechanisms must be designed to ensure smooth progress during construction and sustainable operation thereafter. This includes drafting specialized plans to provide strategic guidance, introducing targeted policies to improve funding efficiency, and innovating institutional arrangements to safeguard implementation.

The implementation process is thus also a process of improving the investment and financing system, updating project management approaches, and enhancing investment effectiveness. In some sectors, soft-measure experiments have had positive impacts, creating healthy interaction with hard investments.

For example, the healthy operation of urban underground pipelines depends on sound maintenance mechanisms. Some local governments have attracted long-term institutional funds into major pipeline projects through debt or equity investment plans, stabilizing private sector returns via operational rights, government subsidies, and tax incentives. Others have introduced province-wide upstream–downstream gas price linkage, set reasonable water supply return rates based on market profits, and advanced the marketization of gas and water prices—reducing losses for public utilities and encouraging private investment.

Similarly, in the quality undergraduate expansion program, mechanisms play a guiding role: schools effectively implementing expansion plans receive increased support, while those performing poorly see reduced support; universities without expanded undergraduate admission plans are generally excluded from special bond funding. Disciplines and programs are adjusted dynamically to align talent training with economic and societal needs.

Directly Relevant to Everyone

The nature of the undertakings is not determined by project size but by their strategic objectives and significance. As long as they align with major national strategies, they are included—whether as large standalone projects, such as high-speed rail along the Yangtze River, or as “project packages,” such as Yangtze River wastewater treatment composed of multiple treatment facilities. This flexible, problem-oriented approach allows better alignment with public needs.

As projects break ground and enter operation, their benefits to people’s livelihoods will become increasingly evident. Observers should not see the undertakings as distant from daily life; they will bring tangible improvements to everyone’s quality of life.

For example:

Urban underground pipelines: Upgrades to gas, water, and heating systems will greatly improve safety and resilience. Renovation of old gas pipelines is nearing completion, reducing accident rates by over 30%. Eliminating hidden risks in unseen places increases residents’ sense of security.
Food security: Gradually converting all permanent basic farmland into high-standard farmland will stabilize grain output and enhance food safety. Higher standards mean safer products, so people will eat with greater confidence.
Yangtze River protection: Building or upgrading over 60,000 kilometers of sewage pipelines in the Yangtze Economic Belt will greatly improve the river’s ecological environment and resolve long-standing public concerns.
Transportation: Creating the shortest Shanghai–Chengdu high-speed rail corridor (approx. 1,900 km) will connect the Yangtze River Delta, the middle Yangtze region, and the Chengdu–Chongqing area more quickly, cutting travel time nearly in half and boosting east–west connectivity.
Ecological security: Implementing the “Three-North” shelterbelt project over 130 million mu (93 million hectares), with good survival rates for trees, shrubs, and grasses, will safeguard northern ecological security and create new income opportunities.
Higher education: “Double First-Class” universities will see markedly improved conditions, with over 500,000 new standard dorm beds. Quality undergraduate enrollment will rise by 16,000 in 2024 and over 20,000 in 2025, giving more students access to quality education and ensuring basic living needs for those from low-income families.

A Bold Stroke in the History of Development

The two major undertakings are a major decision by the CPC Central Committee and the State Council, aimed at the overall strategy of building a strong country and achieving national rejuvenation. They play an irreplaceable role in advancing Chinese modernization.

They are not short-term measures but focus on medium- to long-term development. Some market institutions once analyzed that when China’s economy was facing short-term difficulties and challenges, the launch of the “two major undertakings” was mainly aimed at expanding investment in the short term to stabilize growth. Such a view clearly lacks a professional understanding of the decision-making intentions and logic, fails to properly grasp the relationship between the short term and the medium-to-long term, as well as between objectives and means, and inverts the proper order of priorities — a misconception that needs to be pointed out and corrected.

Since implementation began, the undertakings have provided important support for economic stability. Although their starting point was not short-term growth, the resulting investment has boosted employment and consumption, helping to expand domestic demand and stabilize growth. In the next step, during the formulation and implementation of the 15th Five-Year Plan, the “two major undertakings” will continue to occupy an important place, be organically incorporated into the new five-year plan, and form close alignment and sustained momentum with major national strategies, major plans, major projects, and key initiatives.

They will also bolster the country’s core competitiveness. As foundational support for Chinese modernization, they will strengthen factor security and resolve long-term bottlenecks, with far-reaching significance for shaping China’s development prospects. In an era of intensifying major-power competition, they will provide stable expectations and significantly enhance China’s capacity to manage international uncertainty. Such a major strategy will be pursued with persistence—it will not remain rhetorical, nor will it be reversed abruptly.

Though implementation has only recently begun, the undertakings’ historic role will continue to grow over time. In the future, looking back, they will surely stand as an important part of the “China story” and leave a bold stroke in the history of the People’s Republic’s development.

Economics-Watching: Earmarking in Programmable Payments

[from the Federal Reserve Bank of Atlanta]

by Chris Colson, payments expert, Atlanta Fed Payments Forum

As programmable payments become more common, an old-school budgeting idea is making a comeback: earmarking. At its core, earmarking just means setting money aside for a specific purpose—like rent, payroll, or taxes—so it’s only used for that. It’s a simple concept, but when combined with automation, it could be the budgeting upgrade many people and businesses have been waiting for.

The word “earmark” dates to the 15th century, when farmers would notch their animals’ ears to show ownership. Over time, it came to mean setting something aside for a specific use. In personal finance, this idea lives on in the envelope system, where people divide up cash into labeled envelopes—groceries, bills, savings—and stick to those limits. It works, but let’s face it: handling cash envelopes isn’t exactly practical in a digital-first world.

That’s where programmable payments come in. These are payments that happen automatically based on rules you set. Instead of stuffing envelopes, you set up digital “buckets” for your money. Maybe 20 percent of every gig work payment goes straight to a tax account or your weekly paycheck splits into rent, groceries, and savings buckets automatically.

Through banking apps, digital wallets, or budgeting platforms, consumers choose or create spending categories and assign rules—like percentages, spending limits, or triggers. For example, you can link your checking account to a programmable wallet that auto-transfers money into savings or investments accounts on payday, or prevents spending on dining once you hit your monthly cap.

It’s like having a personal money assistant organizing your finances, paying your bills, and keeping you on budget without you having to think about it. For businesses, this brings new efficiency to managing payroll, vendor payments, and escrow accounts.

The timing couldn’t be better. Many Americans struggle financially. According to the Federal Reserve’s 2024 Survey of Household Economics and Decision-making (SHED), nearly 37 percent of adults wouldn’t be able to cover a $400 emergency without borrowing or selling something. Earmarking can help build emergency savings before the money gets spent elsewhere.

There’s also a big gap when it comes to retirement readiness. The Fed’s Survey of Consumer Finances (SCF) found that just over half of families have any kind of retirement account, and many people say they’re not on track with long-term savings. Automated payments into earmarked savings buckets can help make regular saving less of a hassle and more of a habit.

Even our spending habits show why this works. The Fed’s 2025 Diary of Consumer Payment Choice shows people still prefer cash for small purchases. Programmable payments bring that discipline into the digital world without the need for physical cash.

The upside of earmarking with programmable payments is clear: automation takes the work out of budgeting, real-time visibility helps track your money, and flexible rules let you customize how it all works. It’s also useful in more regulated settings like distributing aid or managing shared accounts because it adds accountability.

But if the rules are too rigid or confusing, that can frustrate users. Businesses may need to integrate programmable features with legacy systems, which takes time and money. And over reliance on automation poses risks—glitches, errors, or outdated settings can cause missed payments or unintended consequences.

Still, earmarking with programmable payments is a smart, modern take on a tried-and-true budgeting technique. It may not be right for every situation—and some apps already do this behind the scenes—but used intentionally, it can bring clarity, control, and purpose to the way money flows. In a complex financial world, that’s something both individuals and experts can benefit from.

Economics-Watching: Remittances in Times of Uncertainty: Understanding the Dynamics and Implications

[from the International Monetary Fund, by Patrick A. Imam, Kangni R Kpodar, Djoulassi K. Oloufade, Vigninou Gammadigbe]

This paper delves into the intricate relationship between uncertainty and remittance flows. The prevailing focus has been on tangible risk factors like exchange rate volatility and economic downturn, overshadowing the potential impact of uncertainty on remittance dynamics. Leveraging a new dataset of quarterly remittances combined with uncertainty indicators across 77 developing countries from 1999 Q1 to 2019 Q4, the analysis highlights that uncertainty in remittance-sending countries negatively affects remittance flows. In contrast, uncertainty in remittance receiving-countries has a more complex, dual effect. In countries with high private investment ratios, rising domestic uncertainty leads to a decline in remittances. Conversely, in countries with low public spending on education and health, remittances increase in response to uncertainty, serving as a social safety net. The paper underscores the heterogeneous and non-linear effects of domestic uncertainty on remittance flows.

Read the paper [archived PDF].

“De-Globalization?”

The classic study of the “swirl of processes and events” that ended previous globalization episodes is the theme of Princeton Professor Harold James’ 2002 book, The End of Globalization: Lessons from the Great Depression.

“Globalization” is here. Signified by an increasingly close economic interconnection that has led to profound political and social change worldwide, the process seems irreversible. In this book, however, Harold James provides a sobering historical perspective, exploring the circumstances in which the globally integrated world of an earlier era broke down under the pressure of unexpected events.

James examines one of the great historical nightmares of the twentieth century: the collapse of globalism in the Great Depression. Analyzing this collapse in terms of three main components of global economics—capital flows, trade and international migration—James argues that it was not simply a consequence of the strains of World War I, but resulted from the interplay of resentments against all these elements of mobility, as well as from the policies and institutions designed to assuage the threats of globalism.

Could it happen again? There are significant parallels today: highly integrated systems are inherently vulnerable to collapse, and world financial markets are vulnerable and unstable.

While James does not foresee another Great Depression, his book provides a cautionary tale in which institutions meant to save the world from the consequences of globalization—think WTO and IMF, in our own time—ended by destroying both prosperity and peace.

Legitimate fears about “globalization reversal” have been well put by Zakaria:

Davos, Switzerland —

President Trump’s speech here at the World Economic Forum went over relatively well. That’s partly because Davos is a conclave of business executives, and they like Trump’s pro-business message. But mostly, the president’s reception was a testament to the fact that he and what he represents are no longer unusual or exceptional. Look around the world and you will see: Trump and Trumpism have become normalized.

Davos was once the place where countries clamored to demonstrate their commitment to opening up their economies and societies. After all, these forces were producing global growth and lifting hundreds of millions out of poverty. Every year, a different nation would become the star of the forum, usually with a celebrated finance minister who was seen as the architect of a boom. The United States was the most energetic promoter of these twin ideas of economic openness and political freedom.

Today, Davos feels very different. Despite the fact that, throughout the world, growth remains solid and countries are moving ahead, the tenor of the times has changed. Where globalization was once the main topic, today it is the populist backlash to it. Where once there was a firm conviction about the way of the future, today there is uncertainty and unease.

This is not simply atmospherics and rhetoric. Ruchir Sharma of Morgan Stanley Investment Management points out that since 2008, we have entered a phase of “deglobalization.” Global trade, which rose almost uninterruptedly since the 1970s, has stagnated, while capital flows have fallen. Net migration flows from poor countries to rich ones have also dropped. In 2018, net migration to the United States hit its lowest point in a decade.

The shift in approach can best be seen in the case of India. In 2018, Prime Minister Narendra Modi came to Davos to decry the fact that “many countries are becoming inward focused and globalization is shrinking.” Since then, his government has increased tariffs on hundreds of items and taken steps to shield India’s farmers, shopkeepers, digital companies and many others from the dangers of international competition. The Office of the U.S. Trade Representative recently called out India for having the highest tariffs of any major economy in the world.

Indian officials used to aggressively court foreign investment, which was much needed to spur growth. Last week, with India’s economy slowing badly, Jeff Bezos announced a $1 billion investment in the country. (Bezos owns The Post.) But the minister of commerce and industry scoffed at the move, saying Amazon wasn’t “doing a great favor to India” and besides was probably engaging in anti-competitive, “predatory” practices. Often, protectionist policies help favored local producers. Malaysian Prime Minister Mahathir Mohamad recently criticized some of Modi’s policies toward Muslims. The Indian government effectively cut off imports of Malaysian palm oil. In a familiar pattern, one of the chief beneficiaries was a local billionaire long associated with Modi.

The Economist notes that Europe, once one of the chief motors for openness in economics and politics, is also rediscovering state intervention to prop up domestic industries. And if you think the Internet is exempt from these tendencies, think again. The European Center for International Political Economy tracks the number of protectionist measures put in place to “localize” the digital economy in 64 countries. It has been surging for years, especially since 2008.

It’s important not to exaggerate the backlash to globalization.

As a 2019 report by DHL demonstrates, globalization is still strong and, by some measures, continues to expand. People still want to trade, travel and transact across the world. But in government policy, where economic logic once trumped politics, today it is often the reverse. Economist Nouriel Roubini argues that the cumulative result of all these measures — protecting local industries, subsidizing national champions, restricting immigration — is to sap growth. “It means slower growth, fewer jobs, less efficient economies,” he told me recently. We’ve seen it happen many times in the past, not least in India, which suffered decades of stagnation as a result of protectionist policies, and we will see the impact in years to come.

Nevertheless, today, nationalism and protectionism prevail.

This phase of deglobalization is being steered from the top. The world’s leading nations are, as always, the agenda-setters. The example of China, which has shielded some of its markets and still grown rapidly, has made a deep impression on much of the world. Probably deeper still is the example of the planet’s greatest champion of liberty and openness, the United States, which now has a president who calls for managed trade, more limited immigration and protectionist measures. At Davos, Trump invited every nation to follow his example. More and more are complying.
“The world is de-globalizing. Trump set the example.” The Washington Post, Fareed Zakaria

Students should sense that while history does not repeat itself, it sometimes rhymes and this is a major danger. It also might imply that coping with climate change will be all the harder because American-led unilateralism everywhere would mean world policy paralysis.

Economics-Watching: Does Monetary Policy Affect Non-Mining Business Investment in Australia?

[from the Reserve Bank of Australia, by Gulnara Nolan, Jonathan Hambur and Philip Vermeulen]

Summary

Business investment is a key driver of economic growth. When investment is strong, workers have access to more capital and equipment, making them more productive and able to contribute to stronger productivity growth. Business investment is also thought to be an important driver of economic cycles and stimulating business investment is one of the key mechanisms through which monetary policy is thought to work.

However, non-mining business investment in Australia was fairly weak over much of the 2010s, despite declines in interest rates and moderate economic growth. While several explanations have been put forward, one potential explanation is that monetary policy is not very effective at stimulating business investment or has become less effective over time.

This study examines the effect of monetary policy changes on non-mining business investment using a variety of national and firm-level investment data, exploring both the aggregate effect of monetary policy and the channels through which monetary policy affects investment.

Abstract

We provide new evidence on the effect of monetary policy on investment in Australia using firm-level data. We find that contractionary monetary policy makes firms less likely to invest and lowers the amount they invest if they do so. The effects are similar for young and old firms, indicating that the decline in the number of young firms in Australia over time is unlikely to have weakened the effect of monetary policy. The effects are also broadly similar for smaller and larger firms. This suggests that evidence that some, particularly large, firms have sticky hurdle rates does not mean that they do not respond to monetary policy. It also suggests that overseas findings that expansionary monetary policy lessens competition by supporting the largest firms likely do not apply to Australia. We find evidence that financially constrained firms, and sectors that are more dependent on external finance, are more responsive to monetary policy, highlighting the important role of cash flow and financing constraints in the transmission of monetary policy. Finally, we find evidence that monetary policy affects firms’ actual and expected investment contemporaneously, suggesting that expectations are reactive and will tend to lag over the cycle.

Read the full paper [archived PDF].

Economics-Watching: How Green Innovation Can Stimulate Economies and Curb Emissions

[from IMF Blog, by Zeina Hasna, Florence Jaumotte & Samuel Pienknagura]

Coordinated climate policies can spur innovation in low-carbon technologies and help them spread to emerging markets and developing economies

Making low-carbon technologies cheaper and more widely available is crucial to reducing harmful emissions.

We have seen decades of progress in green innovation for mitigation and adaptation: from electric cars and clean hydrogen to renewable energy and battery storage.

More recently though, momentum in green innovation has slowed. And promising technologies aren’t spreading fast enough to lower-income countries, where they can be especially helpful to curbing emissions. Green innovation peaked at 10 percent of total patent filings in 2010 and has experienced a mild decline since. The slowdown reflects various factors, including hydraulic fracking that has lowered the price of oil and technological maturity in some initial technologies such as renewables, which slows the pace of innovation.

The slower momentum is concerning because, as we show in a new staff discussion note, green innovation is not only good for containing climate change, but for stimulating economic growth too. As the world confronts one of the weakest five-year growth outlooks in more than three decades, those dual benefits are particularly appealing. They ease concerns about the costs of pursuing more ambitious climate plans. And when countries act jointly on climate, we can speed up low-carbon innovation and its transfer to emerging markets and developing economies.

IMF research [archived PDF] shows that doubling green patent filings can boost gross domestic product by 1.7 percent after five years compared with a baseline scenario. And that’s under our most conservative estimate—other estimates show up to four times the effect.

The economic benefits of green innovation mostly flow through increased investment in the first few years. Over time, further growth benefits come from cheaper energy and production processes that are more energy efficient. Most importantly, they come from less global warming and less frequent (and less costly) climate disasters.

Green innovation is associated with more innovation overall, not just a substitution of green technologies for other kinds. This may be because green technologies often require complementary innovation. More innovation usually means more economic growth.

A key question is how countries can better foster green innovation and its deployment. We highlight how domestic and global climate policies spur green innovation. For example, a big increase in the number of climate policies tends to boost green patent filings, our preferred proxy for green innovation, by 10 percent within five years.

Some of the most effective policies to stimulate green innovation include emissions-trading schemes that cap emissions, feed-in-tariffs, which guarantee a minimum price for renewable energy producers, and government spending, such as subsidies for research and development. What’s more, global climate policies result in much larger increases in green innovation than domestic initiatives alone. International pacts like the Kyoto Protocol and the Paris Agreement amplify the impact of domestic policies on green innovation.

One reason policy synchronization has a prominent impact on domestic green innovation is what is called the market size effect. There’s more incentive to develop low-carbon technologies if innovators can expect to sell into a much larger potential market, that is, in countries which adopted similar climate policies.

Another is that climate policies in other countries generate green innovations and knowledge that can be used in the domestic economy. This is known as technology diffusion. Finally, synchronized policy action and international climate commitments create more certainty around domestic climate policies, as they boost people’s confidence in governments’ commitment to addressing climate change.

Climate policies even help spread the use of low-carbon technologies in countries that are not sources of innovation, through trade and foreign-direct investment. Countries that introduce climate policies see more imports of low-carbon technologies and higher green FDI inflows, especially in emerging markets and developing economies.

Risks of protectionism

Lowering tariffs on low-carbon technologies can further enhance trade and FDI in green technologies. This is especially important for middle- and low-income countries where such tariffs remain high. On the flipside, more protectionist measures would impede the broader spread of low-carbon technologies.

In addition, and given evidence of economies of scale, protectionism—with ultimately smaller potential markets—could stifle incentives for green innovation and lead to duplication of efforts across countries.

The risks of protectionism are exacerbated when climate policies, such as subsidies, do not abide by international rules. For example, local content requirements, whereby only locally produced green goods benefit from subsidies, undermine trust in multilateral trade rules and could result in retaliatory measures.

Beyond embracing a rules-based approach to climate policies, the advanced economies, where most green innovation occurs, have an important responsibility: sharing the technology so that emerging and developing economies can get there faster. Such direct technology transfers hold the promise of a double dividend for emerging markets and developing economies—reducing emissions and yielding economic benefits.

—This blog reflects research by Zeina Hasna, Florence Jaumotte, Jaden Kim, Samuel Pienknagura and Gregor Schwerhoff.

Economics-Watching: Third-Quarter GDP Growth Estimate Increased

[from the Federal Reserve Bank of Atlanta’s GDPNow]

The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. The Federal Reserve Bank of Atlanta’s GDPNow forecasting model provides a “nowcast” of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the U.S. Bureau of Economic Analysis.

GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 4.1 percent on August 8, up from 3.9 percent on August 1. After recent releases from the U.S. Census Bureau, the Institute for Supply Management, the U.S. Bureau of Economic Analysis, and the U.S. Bureau of Labor Statistics, an increase in the nowcast of third-quarter real gross private domestic investment growth from 5.2 percent to 8.1 percent was slightly offset by decreases in the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real government spending growth from 3.5 percent and 2.9 percent, respectively, to 3.2 percent and 2.7 percent, while the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from 0.08 percentage points to 0.11 percentage points.

The next GDPNow update is Tuesday, August 15.

World-Watching: The Problem with the Current Russia Sanctions Regime

[from Project Syndicate, by Mohamed A. El-Erian]

There is much debate about the effectiveness of Western sanctions, the Ukraine war’s implications for markets and the global economy, and what the West’s next steps should be. While there are few good options, some are clearly worse than others.

Cambridge — It has been five months since Europe and the United States imposed tough economic and financial sanctions on Russia, a G20 country that was the world’s eleventh-largest economy on the eve of its invasion of Ukraine. While the sanctions have been gradually strengthened in the intervening months, debate rages about their effectiveness, the war’s broader implications for markets and the global economy, and what the West’s next steps should be.

On the first question, although the sanctions have been less effective than Europe and the U.S. had hoped, they also are proving more onerous than the Kremlin claims. Russia’s central bank expects GDP to contract by 8-10% this year, while other forecasters expect a larger fall, together with longer-lasting damage to growth potential. Imports and exports have been severely disrupted, and inflows of foreign investment have essentially stopped. Shortages are multiplying, pushing inflation higher. At this point, the country no longer has a properly functioning foreign-exchange market.

The sanctions would have bitten much harder had the West not opted for a carve-out of Russia’s energy sector, and had many more countries joined the U.S. and Europe in the effort. Because that didn’t happen, Russia has not felt nearly as much pressure as it would have. Moreover, it has been able to continue trading through various side and back doors that will likely become increasingly important as long as the sanctions regime, as currently designed, continues.

Nonetheless, it is only a matter of time before the Russian economy experiences a harder hit. Inventories of imported goods – including many critical technological and industrial inputs – are dwindling fast, and many sectors are becoming less resilient. The cumulative damage to Russia’s economy over time will be significant and long-lasting – a fact that has not yet been fully captured by consensus medium-term forecasts.

The second question concerns global spillovers from the war and the sanctions regime. Most observers agree that Russia’s invasion has increased not just energy insecurity but also food insecurity, highlighting the fallout from the war’s disruption to Ukrainian agricultural exports. But there is still much debate about the West’s use of the economic nuclear sanctions option: the curbs placed on Russia’s central bank and on Russia’s use of the international payments system.

These curbs are far more intrusive than the usual mix of restrictions on sanctioned government and private sector trade and on individuals’ financial dealings. Yet, because they are not subject to any internationally agreed standards, guidelines, or checks and balances, they fall outside the purview of relevant global-governance bodies such as the Bank for International Settlements, the International Monetary Fund, and the World Trade Organization.

In a time of war, such oversight might seem like a nicety. But some worry that the sanctions could significantly reduce the dollar’s role as the world’s reserve currency and the U.S. financial system’s role as the primary global intermediary for other countries’ savings and investments. After all, a growing number of countries undoubtedly now feel more vulnerable to the reach of U.S. sanctions.

But it is impossible to replace something with nothing, which means that no significant loss of dollar or U.S. financial primacy will occur in the immediate future. Rather, the sanctions will lend further momentum to the gradual process of global economic fragmentation, which was also fueled a few years ago by the tariffs imposed by the Trump administration. More countries now have even more of a reason to pursue greater financial resilience and inherently inefficient forms of self-insurance.

That brings us to the third debate. With no end in sight for the war, what should the West do next? Fearing the implications for energy prices and the supply of gas to Europe, many in the West are tempted to call for a moratorium on any new sanctions – or even for additional carve-outs. Others, however, favor additional measures to hold Russia accountable for its indiscriminate attacks on Ukrainian civilians.

In any case, maintaining the current sanctions regime is not problem-free, owing to the twin objectives of pressuring Russia and limiting the economic disruption to Europe. Moreover, as European Commission President Ursula von der Leyen recently said, it feels as if Russia is “blackmailing” Europe by threatening to disrupt gas supplies at any moment. No wonder the Commission is urging member countries to cut consumption by 15%.

Under the current sanctions regime, the West risks falling between two horses. While easing sanctions could help alleviate concerns about Europe’s economic outlook, this option is a non-starter, given the atrocities that Russian forces are committing in Ukraine. But if the West is serious about pressuring Russia through truly crippling economic and financial sanctions, it needs to bite the bullet and eliminate the carve-outs for energy.

Doing so would undoubtedly have a severe short-term economic impact on European economies and the rest of the world, amplifying the “little fires everywhere” syndrome that I warned about in May. It is therefore critical that governments use their available fiscal space to provide targeted support to vulnerable segments of the population, as well as to fragile countries; and multilateral agencies must support developing countries through aid and a more operational debt relief framework. If done properly, this option would yield better outcomes in the medium and long term than the current strategy.

Muddling through risks bringing about the worst of all possible worlds. It is insufficient to dissuade Russia from continuing its illegal war; it is fueling deeper fragmentation of the international monetary system; and it is not even protecting Europe from a winter gas disruption.

Mohamed A. El-Erian, President of Queens’ College at the University of Cambridge, is a professor at the Wharton School of the University of Pennsylvania and the author of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse (Random House, 2016).

3rd Harvard Korean Security Summit: “Korea—A Catalyst for Global Trends” [Zoom]

[from Harvard Kennedy School’s Belfer Center, part of Harvard University]

Tuesday, July 19 – Thursday, July 21

RSVP REQUIRED FOR EACH DAY

During July 19-21, 2022, the Korea Project will convene the 3rd Harvard Korean Security Summit. Our theme of “Korea—A Catalyst of Global Trends” explores how quickly various Korea-related functional issues play out with global implications. Korea cases provide unique insights into global trends ranging from ongoing efforts to change leader-level calculus (2017 Korean Missile Crisis) to the ROK’s designs for bolstering tech supply chain resilience to the DPRK’s expanding use of cryptocurrency theft for funding the regime.

Day 1: Tue., July 19, 2022 | 5:00 – 7:30 PM ET (RSVP for Day 1)
Day 2: Wed., July 20, 2022 | 5:00 – 7:15 PM ET (RSVP for Day 2)
Day 3: Thu., July 21, 2022 | 5:00 – 7:15 PM ET (RSVP for Day 3)

Day 1 Agenda (Tuesday, July 19)

5:00 – 5:05 PM ET: Day 1 Overview

Dr. John Park (Director, Korea Project, Belfer Center, Harvard Kennedy School)

5:05 – 5:10 PM ET: Korea Foundation’s Opening Remarks

Dr. Geun Lee (President, Korea Foundation)

5:10 – 5:15 PM ET: Belfer Center’s Opening Remarks

Natalie Colbert (Executive Director, Belfer Center, Harvard Kennedy School)

5:15 – 5:20 PM ET: Congratulatory Remarks

The Honorable Dr. Park Jin (Minister of Foreign Affairs, Republic of Korea)

5:20 – 7:25 PM ET: Panel 1: Enhancing Security on the Korean Peninsula

Panelists

General (Ret.) Vincent Brooks (Senior Fellow, Belfer Center, Harvard Kennedy School & Former Commander, ROK-U.S. Combined Forces Command)

Emma Chanlett-Avery (Specialist in Asian Affairs, Congressional Research Service)

General (Ret.) Leem Ho-Young (President, Korea Association of Military Studies & Former Deputy Commander, ROK-U.S. Combined Forces Command)

Dr. Sue Mi Terry (Director, Hyundai Motor-Korea Foundation Center for Korean History and Public Policy, Wilson Center)

The Honorable Dr. Yoon Young-kwan (Former Minister of Foreign Affairs, Republic of Korea)

Moderator

Nick Schifrin (Foreign Affairs and Defense Correspondent, PBS NewsHour) – TBC

7:25 – 7:30 PM ET: Day 1 Wrap-Up

Dr. John Park (Director, Korea Project, Belfer Center, Harvard Kennedy School)

Day 2 Agenda (Wednesday, July 20)

5:00 – 5:05 PM ET: Day 2 Overview

Dr. John Park (Director, Korea Project, Belfer Center, Harvard Kennedy School)

5:05 – 5:15 PM ET: Day 2 Keynote Remarks

Tami Overby (Senior Director, McLarty Associates & Former President, U.S.-Korea Business Council)

5:15 – 7:10 PM ET: Panel 2: Building Mutual Prosperity Through Resilient Technology Supply Chains

Panelists

The Honorable Dr. Taeho Bark (Former ROK Minister for Trade & President, Lee & Ko Global Commerce Institute)

Ambassador Mark Lippert (Executive Vice President, Head of U.S. Public Affairs, and Chief Risk Officer, Samsung Electronics & Former U.S. Ambassador to the Republic of Korea)

Damien Ma (Managing Director, MacroPolo, Paulson Institute)

Naomi Wilson (Vice President of Policy, Asia, Information Technology Industry Council)

Moderator

Dr. Francesca Giovannini (Executive Director, Managing the Atom Project, Belfer Center, Harvard Kennedy School)

7:10 – 7:15 PM ET: Day 2 Wrap-Up

Dr. John Park (Director, Korea Project, Belfer Center, Harvard Kennedy School)

Day 3 Agenda (Thursday, July 21)

5:00 – 5:05 PM ET: Day 3 Overview

Dr. John Park (Director, Korea Project, Belfer Center, Harvard Kennedy School)

5:05 – 5:15 PM ET: Day 3 Keynote Remarks

Jean Lee (Host of BBC Podcast Series, The Lazarus Heist)

5:15 – 7:05 PM ET: Panel 3: Addressing North Korea’s Cybercriminal Statecraft Activities

Panelists

Jason Bartlett (Research Associate, Energy, Economics, and Security Program, Center for a New American Security)

Ashley Chafin-Lomonosov (DPRK Cybercrimes Expert, Chainalysis)

Saher Naumaan (Principal Threat Intelligence Analyst, BAE Systems Applied Intelligence)

David Park (Senior Policy Advisor, U.S. Department of the Treasury)

Moderator

Alex O’Neill (Coordinator, Korea Project, Belfer Center, Harvard Kennedy School)

7:05 – 7:10 PM ET: Day 3 Wrap-Up

Dr. John Park (Director, Korea Project, Belfer Center, Harvard Kennedy School)

7:10 – 7:15 PM ET: Closing Remarks

Consul General Kijun You (Korean Consulate General in Boston)

Speaker Biographies

Dr. Taeho Bark is the first president of the Lee & Ko Global Commerce Institute (GCI), newly established in September 2017. Together with the GCI team members working under his supervision, Dr. Bark monitors new developments and trends in global trade and investment, analyzes major international trade dispute cases and provides in-depth advice and strategic insights to Korean and foreign enterprises in connection with their trade and investment-related planning and concerns. Dr. Bark is an internationally renowned trade expert and, among other accomplishments, is a Seoul National University (SNU) Professor Emeritus, who has lectured extensively on international commerce and related subjects, and former Dean of the SNU Graduate School of International Studies (GSIS). In addition to his academic career, Dr. Bark has extensive experience serving as a public official working on trade policy and negotiation matters, having served with distinction as Minister for Trade of the Korean government (December 2011 – March 2013), as well as serving as the Ambassador-at-Large for International Trade and as the Chairman of the International Trade Commission of Korea.

Jason Bartlett is a Research Associate for the Energy, Economics, and Security Program at the Center for a New American Security (CNAS). He analyzes developments and trends in sanctions policy and evasion tactics, proliferation finance, and cyber-enabled financial crime with a regional focus on North Korea, Iran, and Venezuela. He also researches the U.S.–ROK alliance and international security issues, such as North Korean military provocations and cybercrime. Lastly, Bartlett leads research and writing for the CNAS Sanctions by the Numbers series. Prior to joining CNAS, Bartlett worked at various nonprofit research organizations such as C4ADS, the Center for Strategic and International Studies, the Committee for Human Rights in North Korea, and the Asan Institute for Policy Studies in South Korea. He also spent several years volunteering at human rights-focused NGOs resettling North Korean defectors in the United States and South Korea. Bartlett was a 2018-2019 Boren Fellow and Critical Language Scholarship (CLS) recipient in South Korea for Korean language immersion through the U.S. Departments of Defense and State, respectively. He holds a master’s degree in Asian studies and a graduate certificate in refugee and humanitarian emergencies from the School of Foreign Service at Georgetown University. He received a B.S. in Spanish language and literature and a B.A. in international studies from SUNY Oneonta. He also graduated from the Korean Language Institute at Yonsei University in Seoul. Bartlett is fluent in Korean and Spanish. Outside of CNAS, Bartlett is a contributing author for The Diplomat, where he writes on the intersections of cyber, culture, and security in Asia. He is also a member of the North Korea Cyber Working Group at the Harvard Kennedy School’s Belfer Center. His commentary and analysis have appeared in The Wall Street Journal, Government Matters, Business Insider, Yahoo! Finance, The Wire China, NK News, Inkstick Media, Radio Free Asia, Voice of America – Korean, The National Interest, and El País.

General (Ret.) Vincent K. Brooks is a career Army officer who retired from active duty in January 2019 as the four-star general in command of over 650,000 Koreans and Americans under arms. General Brooks is a 1980 graduate of the U.S. Military Academy at West Point, which was the first class to include women. He led the 4,000 cadets as the cadet brigade commander or “First Captain.” A history-maker, Brooks is the first African American to have been chosen for this paramount position, and he was the first cadet to lead the student body when women were in all four classes. He is also the eighth African American in history to attain the military’s top rank – four-star general in the U.S. Army. He holds a Bachelor of Science in Engineering from the U.S. Military Academy at West Point; a Master of Military Art and Science from the prestigious U.S. Army School of Advanced Military Studies at Fort Leavenworth, Kansas; was a National Security Fellow at Harvard University’s John F. Kennedy School of Government. General Brooks also holds an honorary Doctor of Laws from the New England School of Law as well as an honorary Doctor of Humanities from New England Law | Boston. He is a combat veteran and a member of the Council on Foreign Relations. In retirement, General Brooks is a Director of the Gary Sinise Foundation; a non-resident Senior Fellow at Harvard Kennedy School’s Belfer Center for Science and International Affairs; a Distinguished Fellow at the University of Texas, with both the Clements Center for National Security and also the Strauss Center for International Security and Law; an Executive Fellow with the Institute for Defense and Business; and the President of VKB Solutions LLC.

Ashley Chafin-Lomonosov is a Cybercrimes Investigator with Chainalysis, the blockchain data company that serves the public and private sectors globally in order to enable investigations and compliance in the crypto space. Prior to joining Chainalysis, Ashley served in the U.S. government. She leverages the past 10 years of developing financial threat intelligence analysis skills to investigate nation state activity on the blockchain. She specifically focuses on East Asian issues, spending the majority of her time studying DPRK’s tactics, techniques, and procedures on the blockchain. Ashley holds a Master’s in Business Administration and a Bachelor of Arts in Journalism & Public Relations.

Emma Chanlett-Avery is a Specialist in Asian Affairs at the Congressional Research Service. She focuses on U.S. relations with Japan, the Korean Peninsula, Thailand, and Singapore. Ms. Chanlett-Avery joined CRS in 2003 through the Presidential Management Fellowship, with rotations in the State Department on the Korea Desk and at the Joint U.S. Military Advisory Group in Bangkok, Thailand. She also worked in the Office of Policy Planning as a Harold Rosenthal Fellow. She is a member of the Mansfield Foundation U.S.-Japan Network for the Future, Vice-Chair of the Board of Trustees of the Japan America Society of Washington, and the 2016 recipient of the Kato Prize. Ms. Chanlett-Avery received an M.A. in international security policy from the School of International and Public Affairs at Columbia University and her B.A. in Russian studies from Amherst College.

Natalie Colbert is the Belfer Center’s Executive Director. Before coming to the Belfer Center, Colbert served in the Central Intelligence Agency for 13 years. Most recently, she was Director of Analytic Resources and Corporate Programs for the Near East Mission Center, where she led strategic management of analytic personnel resources and created a career development seminar for mid-level analysts. Prior to this role, Colbert led multiple analytic teams to produce intelligence assessments covering fast-paced issues in the Middle East for the President and other customers in the policymaking, intelligence, and military communities. Colbert previously served as an intelligence analyst covering conflict zones in Africa and Latin America. Across her CIA career, Colbert has earned awards for leadership excellence and in 2021 received the Near East Mission Center Award for Excellence in Diversity, Equity, and Inclusion. Colbert is a 2008 graduate of Harvard Kennedy School, where she earned a Master in Public Policy. She graduated in 2006 from New York University, majoring in International Relations and Francophone Studies.

Dr. Francesca Giovannini is the Executive Director of the Project on Managing the Atom at the Harvard Kennedy School’s Belfer Center for Science and International Affairs. In addition, she is a non-residential fellow at the Centre for International Security and Cooperation at Stanford University. Dr. Giovannini served as Strategy and Policy Officer to the Executive Secretary of the Comprehensive Nuclear Test Ban Treaty Organization (CTBTO), based in Vienna. In that capacity, she oversaw a series of policy initiatives to promote CTBT ratification as a confidence-building mechanism in regional and bilateral nuclear negotiations, elevate the profile of CTBT in academic circles and promote the recruitment of female scientists from the Global South. Prior to her international appointment, Dr. Giovannini served for five years at the American Academy of Arts and Sciences in Boston as Director of the Research Program on Global Security and International Affairs. Working to leverage academic knowledge to inform better policies, she led and promoted countless academic research on issues such as bilateral and multilateral arms control frameworks, regional nuclear proliferation dynamics, and nuclear security and insider threats. With a Doctorate from the University of Oxford and two Masters from the University of California, Berkeley, Dr. Giovannini began her career working for international organizations and the Italian Ministry of Foreign Affairs.

Dr. Geun Lee was appointed President of the Korea Foundation in September 2019. Prior to joining the Korea Foundation, he was a professor of International Relations at the Graduate School of International Studies, Seoul National University, and former Dean of Office of International Affairs, Seoul National University. From 2015 to 2016, he was visiting Super Global Professor at Keio University in Japan. He is also former Chair of the Global Agenda Council on the Future of Korea at the World Economic Forum (Davos Forum), and currently a member of the Global Future Council of the World Economic Forum. Before joining the faculty of Seoul National University, he served as a professor at the ROK Ministry of Foreign Affairs’ Institute of Foreign Affairs and National Security (which is now part of the Korea National Diplomatic Academy). He also served as President of an independent think tank, Korea Institute for Future Strategies from 2003-2007. His publications include “Clash of Soft Power between China and Japan,” “A Theory of Soft Power and Korea’s Soft Power Strategy,” “The Nexus between Korea’s Regional Security Options and Domestic Politics,” “U.S. Global Defense Posture Review and its Implications on the U.S.-Korea Relations.” He co-authored The Environmental Dimension of Asian Security. Dr. Lee received his B.A. in political science from Seoul National University, and M.A. and Ph.D. in political science from the University of Wisconsin at Madison.

Jean Lee is a veteran foreign correspondent and expert on North Korea. Lee led the Associated Press (AP) news agency’s coverage of the Korean Peninsula as bureau chief from 2008 to 2013. In 2011, she became the first American reporter granted extensive access on the ground in North Korea, and in January 2012 opened AP’s Pyongyang bureau, the only U.S. text/photo news bureau based in the North Korean capital. She has made dozens of extended reporting trips to North Korea, visiting farms, factories, schools, military academies, and homes in the course of her exclusive reporting across the country. During Lee’s tenure, AP’s coverage of Kim Jong Il’s 2011 death earned an honorable mention in the deadline reporting category of the 2012 Associated Press Media Editors awards for journalism in the United States and Canada. Lee also won an Online Journalism Award in 2013 for her role in using photography, video, and social media in North Korea. Lee is a native of Minneapolis. She has a bachelor’s degree in East Asian Studies and English from Columbia University, and a master’s degree from the Columbia Graduate School of Journalism. She worked as a reporter for the Korea Herald in Seoul, South Korea, before being posted with AP to the news agency’s bureaus in Baltimore, Fresno, San Francisco, New York, London, Seoul, and Pyongyang. Lee served as a Wilson Center Public Policy Scholar and Global Fellow before joining the Asia Program as Korea Center program director. She has contributed commentary and feature stories to the New York Times Sunday Review, Esquire magazine, the New Republic and other publications. She appears as an analyst for CNN, BBC, NPR, PRI, and other media, and serves frequently as a guest speaker on Korea-related topics. She is a member of the National Committee on North Korea, the Council of Korean Americans, the Asian American Journalists Association, and the Pacific Council. She serves on the World Economic Forum’s Global Futures Council on the Korean Peninsula. She is co-host of the Lazarus Heist podcast on the BBC World Service.

General (Ret.) Leem Ho-Young is the President of the Korea Association of Military Studies, a nonprofit think tank operating under the auspices of the ROK Ministry of National Defense. He is also the Vice Chairman of the Korea Defense Veterans Association and Vice President of the Korea-U.S. Alliance Foundation. Previously, General Leem was the Commander of the Ground Component Command and Deputy Commander of the ROK-U.S. Combined Forces Command from 2016 to 2017. General Leem has served as the ROK Army’s Director of Audit and Inspection and the Director of Strategy and Planning for the ROK Joint Chiefs of Staff. He has been a lifelong Infantry officer since his graduation from the Korea Military Academy, Class Number 38.

Ambassador Mark Lippert has had a distinguished career in the U.S. government that spanned approximately two decades and included a series of senior-level positions across multiple agencies. From 2014-2017, he served as the U.S. ambassador extraordinary and plenipotentiary to the Republic of Korea, based in Seoul. He previously held positions in the Department of Defense, including as chief of staff to Secretary of Defense Chuck Hagel (2013-2014) and as assistant secretary of defense for Asian and Pacific Security Affairs (2012-2013), the top official in the Pentagon for all Asia issues. Lippert also worked in the White House as chief of staff to the National Security Council in 2009. Lippert served in the uniformed military. An intelligence officer in the U.S. Navy, he mobilized to active duty from 2009 to 2011 for service with Naval Special Warfare (SEALs) Development Group that included deployments to Afghanistan and other regions. From 2007 to 2008, he deployed as an intelligence officer with Seal Team One to Anbar Province, Iraq in support of Operation Iraqi Freedom. Earlier in his career, Lippert served as a staff member in the U.S. Senate, where he worked on the Senate Foreign Relations Committee for then-Senator Obama; the Senate Appropriations Committee State-Foreign Operations Subcommittee for Senator Leahy, and for other members of the Senate. His awards and decorations include the Bronze Star Medal for his service in Iraq, the Defense Meritorious Service Medal, and the Basic Parachutist Badge. He is also the recipient of the Department of Defense’s Distinguished Public Service Award and the Department of the Navy’s Distinguished Public Service Award. He graduated Phi Beta Kappa from Stanford University with a B.A. in political science and holds an M.A. in international policy studies from the same institution. He speaks Korean and also studied Mandarin Chinese at Beijing University.

Damien Ma is Managing Director and co-founder of MacroPolo, the Think Tank of the Paulson Institute. He is the author or editor of the books, In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade, The Economics of Air Pollution in China (by Ma Jun), and China’s Economic Arrival: Decoding a Disruptive Rise, published by Palgrave Macmillan. He is also adjunct faculty at the Kellogg School of Management at Northwestern University. Previously, Ma was a Senior Analyst at Eurasia Group, the political risk research and advisory firm. At Eurasia Group, he mainly focused on the China and East Asian markets, covering areas that spanned energy and commodities and industrial policy to elite politics and U.S.-China relations. He also led work on analyzing Mongolian politics and its mining sector. His advisory and analytical work served a range of clients from institutional investors and multinationals to the U.S., Japanese, and Singaporean governments. Prior to joining Eurasia Group, he was a manager of publications at the U.S.-China Business Council in Washington, D.C., where he was also an adjunct instructor at Johns Hopkins SAIS. Early in his career, he worked at public relations firm H-Line Ogilvy in Beijing, where he served multinational clients. In addition, Ma has published widely, including in The Atlantic, New York Times, Foreign Affairs, The New Republic, Foreign Policy, and Bloomberg, among others. He has also appeared in a range of broadcast media such as the Charlie Rose Show, BBC, NPR, and CNBC. In addition to media appearances, Ma has keynoted or spoken at various industry, investor, and academic conferences, including CLSA and Credit Suisse Latin America. Ma was named a “99under33” foreign policy leader by the Young Professionals in Foreign Policy. He speaks fluent Mandarin Chinese.

Saher Naumaan is Principal Threat Intelligence Analyst at BAE Systems Applied Intelligence. She currently researches state-sponsored cyber espionage with a focus on threat groups and activity in the Middle East. Saher specialises in analysis covering the intersection of geopolitics and cyber operations, and regularly speaks at public and private conferences around the world, including SAS, Virus Bulletin, FIRST, and Bsides. Prior to working at Applied Intelligence, Saher graduated from King’s College London with a Master’s in Intelligence and Security, where she received the Barrie Paskins Award for Best MA dissertation in War Studies.

Alex O’Neill is Coordinator of the Korea Project and an Associate at the Belfer Center for Science and International Affairs. He is also a Co-Founder of the Belfer Center’s North Korea Cyber Working Group. As Coordinator, Alex helps oversee all Korea Project events and initiatives, including the annual Harvard Korean Security Summit. He previously worked as Research Assistant to Prof. Matthew Bunn at the Belfer Center’s Project on Managing the Atom. Alex’s work focuses on North Korean financially motivated cyber operations, as well as links between North Korean and Russian-speaking criminals. His most recent research publication is “Cybercriminal Statecraft: North Korean Hackers’ Ties to the Global Underground.” Alex is a member of the Advisory Board of the International Refugee Assistance Project and of the Young Professionals Briefing Series at the Council on Foreign Relations. He speaks fluent Spanish and has advanced proficiency in Russian. Alex holds an M.Sc. in Russian and East European Studies from the University of Oxford and a B.A. in History from Yale University.

Tami Overby is Board Director for The Korea Society and Senior Director at McLarty Associates, where she advises clients on Asia and trade matters, with a particular focus on Korea. She has three decades of Asia work, including 21 years living and working in Seoul. Her most recent experience includes eight years leading the U.S. Chamber of Commerce’s Asia team while also serving as President of the U.S.-Korea Business Council. Ms. Overby’s extensive experience helps American companies compete and prosper in Asia. She attended many of the TransPacific Partnership (TPP) negotiating rounds, often leading the American business delegation to help ensure U.S. firms’ priorities were well understood by the negotiating partners. She oversaw the U.S. Coalition for TPP, an alliance led by the U.S. Chamber, the Business Roundtable, the National Association of Manufacturers, the Farm Bureau, and the Emergency Committee for Trade.

David Park is a Senior Policy Advisor in the U.S. Treasury Department’s Office of Terrorist Financing and Financial Crimes (TFFC). He advises senior leadership on policies and strategies that utilize Treasury’s tools to compete against China in the national security context, including in the technology, economy, and military spheres. He is also responsible for developing polices and strategies that seek to counter Chinese illicit financing, money laundering, financial crimes, corruption, and human rights abuses to advance U.S. national interests in the Indo-Pacific. Previously, David was the first U.S. Treasury Representative to Korea. While there, he advised U.S. government (USG) senior officials and agencies on North Korea sanctions, economy, and illicit financing and sought ways to work cooperatively with ROK institutions to enhance the USG’s pressure campaign on North Korea. Before his assignment to Korea, David was Senior Advisor to the Acting Assistant Secretary and Deputy Assistant Secretary (DAS) for TFFC, advising her on countering terrorist financing, proliferation financing, money laundering, corruption, and financial crimes issues. David began his Treasury career as a Policy Advisor, responsible for developing Treasury’s strategy and policy to counter North Korean illicit financing, financial crimes, and sanctions evasion. Before Treasury, David served in the Office of U.S. Senator Joe Donnelly as a Defense and Foreign Affairs Legislative Staffer. In this role, he advised the Senator on his Senate Armed Services Committee work and advanced U.S. national interests through the annual National Defense Authorization Act. David began his public service career as an officer in the U.S. Air Force. In the Air Force, he served with service members from all the service branches, the ROK Air Force in Korea, and NATO nations in Belgium. David earned his B.A. with honors from the University of California, Berkeley, MPA from the University of Oklahoma, and MA from The Fletcher School of Law and Diplomacy, Tufts University.

Dr. Park Jin is Minister of Foreign Affairs of the Republic of Korea. He previously served four terms as a Member of the National Assembly (16th, 17th, 18th, 21st), including as a member of the Science, Technology, Information and Communication Committee (2002-2004), a ranking member of the National Defense Committee (2004-2006), a member of the Intelligence Oversight Committee (2004-2006), a member of the Foreign Affairs, Trade and Unification Committee (2006-2010) and a ranking member of the Knowledge Economy Committee (2010-2012). He served as the Chairman of the Foreign Affairs, Trade and National Unification Committee from 2008-2010. In that capacity, he passed the KORUS FTA, Korea-EU FTA, North Korea Human Rights Act, ODA Law and PKO Law. He was also actively involved in parliamentary diplomacy with the U.S., the U.K., China, Japan, ASEAN, Central Asia, Israel and the Middle East. He previously served as the Presidential Secretary for Press Affairs and later Political Affairs under the Kim Young-sam administration (1993-1998) before being elected parliamentary member in August 2002 in Seoul. During his private life, Dr. Park led the Asia Future Institute (AFI), an independent policy think-tank established in 2013 and designed to conduct research on economic, political and strategic issues in Asia and promote Korea’s role in the Asia-Pacific region. He also served as the Chairman of Korea-America Association (KAA), which was created in 1963 to promote mutual understanding, friendship and cooperation between Korea and the United States. He served as a Global Fellow of the Woodrow Wilson International Center for Scholars in Washington D.C. from 2014 to 2021. Dr. Park also taught as an endowed Chair Professor at the Graduate School of International and Area Studies of Hankuk University of Foreign Studies. Previously he led the Korea-Britain Society as the Executive President (2007-2017). With great affection for the sea, he served in the Korean military as a Navy officer, Lieutenant JG (1980-1983) lecturing naval cadets in the Korean Naval Academy in Jinhae. Dr. Park graduated from the College of Law at Seoul National University (B.A.), Kennedy School of Government at Harvard University (MPA), New York University Law School (LL.M.) and received a doctorate degree (D. Phil.) in politics from St. Antony’s College, Oxford University.

Dr. John Park is Director of the Korea Project at the Harvard Kennedy School’s Belfer Center for Science and International Affairs. He is also a Faculty Member of the Committee on Regional Studies East Asia, an Associated Faculty Member of the Korea Institute, and a Faculty Affiliate with the Project on Managing the Atom. His core research projects focus on the political economy of the Korean Peninsula, nuclear proliferation, economic statecraft, Asian trade negotiations, and North Korean cyber operations. He previously worked at Goldman Sachs and The Boston Consulting Group. Dr. Park presented a TEDxPaloAlto talk in 2019 titled “How North Korea Inc. Evades Sanctions Through Innovation.” Dr. Park’s key publications include: “Stopping North Korea, Inc.: Sanctions Effectiveness and Unintended Consequences,” (MIT Security Studies Program, 2016 – co-authored with Jim Walsh); “The Key to the North Korean Targeted Sanctions Puzzle,” The Washington Quarterly (Fall 2014); “Assessing the Role of Security Assurances in Dealing with North Korea” in Security Assurances and Nuclear Nonproliferation (Stanford University Press, 2012); “North Korea, Inc.: Gaining Insights into North Korean Regime Stability from Recent Commercial Activities” (USIP Working Paper, May 2009); and “North Korea’s Nuclear Policy Behavior: Deterrence and Leverage,” in The Long Shadow: Nuclear Weapons and Security in 21^st Century Asia (Stanford University Press, 2008). Dr. Park received his Ph.D. from the University of Cambridge, where he was a Social Sciences and Humanities Research Council Doctoral Fellow. He completed his pre-doctoral and post-doctoral training at the Harvard Kennedy School’s Belfer Center.

Nick Schifrin is the foreign affairs and defense correspondent for PBS NewsHour, based in Washington, D.C. He leads NewsHour’s foreign reporting and has created week-long, in-depth series for NewsHour from China, Russia, Ukraine, Nigeria, Egypt, Kenya, Cuba, Mexico, and the Baltics. The PBS NewsHour series “Inside Putin’s Russia” won a 2018 Peabody Award and the National Press Club’s Edwin M. Hood Award for Diplomatic Correspondence. In November 2020, Schifrin received the American Academy of Diplomacy’s Arthur Ross Media Award for Distinguished Reporting and Analysis of Foreign Affairs. Prior to PBS NewsHour, Schifrin was Al Jazeera America’s Middle East correspondent. He won an Overseas Press Club Award for his Gaza coverage and a National Headliners Award for his Ukraine coverage. From 2008-2012, Schifrin served as the ABC News correspondent in Afghanistan and Pakistan. In 2011, he was one of the first journalists to arrive in Abbottabad, Pakistan, after Osama bin Laden’s death and delivered one of the year’s biggest exclusives: the first video from inside bin Laden’s compound. His reporting helped ABC News win an Edward R. Murrow Award for its bin Laden coverage. He has a Master of International Public Policy degree from the Johns Hopkins School of Advanced International Studies (SAIS), with a concentration in Strategic Studies.

Dr. Sue Mi Terry is Director of the Asia Program and the Hyundai Motor-Korea Foundation Center for Korean History and Public Policy at the Wilson Center. Prior to joining the Wilson Center, Dr. Terry served in a range of important policy roles related to both Korea and its surrounding region. Formerly a Senior Fellow with the Korea Chair at the Center for Strategic and International Studies (CSIS), she served as a Senior Analyst on Korean issues at the CIA (2001-2008), where she produced hundreds of intelligence assessments – including a record number of contributions to the President’s Daily Brief, the Intelligence Community’s most prestigious product. She received numerous awards for her leadership and outstanding mission support, including the CIA Foreign Language award in 2008. From 2008 to 2009, Dr. Terry was the Director for Korea, Japan, and Oceanic Affairs at the National Security Council under both President George W. Bush and President Barack Obama. In that role, she formulated, coordinated, and implemented U.S. government policy on Korea and Japan, as well as Australia, New Zealand, and Oceania. From 2009 to 2010, she was Deputy National Intelligence Officer for East Asia at the National Intelligence Council. In that position, she led the U.S. Intelligence community’s production of strategic analysis on East Asian issues and authored multiple National Intelligence Estimates. From 2010 to 2011, Dr. Terry served as the National Intelligence Fellow in the David Rockefeller Studies Program at the Council on Foreign Relations in New York. Since leaving the government, Dr. Terry has been a Senior Research Scholar at Columbia University’s Weatherhead East Asian Institute (2011-2015), where she taught both graduate and undergraduate courses on Korean politics and East Asia. She holds a Ph.D. (2001) and an M.A. (1998) in international relations from the Fletcher School of Law and Diplomacy at Tufts University and a B.A. in political science from New York University (1993).

Naomi Wilson serves as vice president of policy, Asia at the Information Technology Industry Council. Prior to joining ITI, Naomi served at the U.S. Department of Homeland Security (DHS), where she most recently held the position of acting director for Asia-Pacific. In that capacity, she played a leading role on cybersecurity, law enforcement, and customs cooperation issues related to Asia and served as a senior advisor to Secretary Jeh Johnson. During her tenure at DHS, Naomi led development and implementation of priority policy initiatives for DHS engagement with China, including secretarial engagements and agreements. She worked closely with interagency colleagues to negotiate and implement agreements stemming from the September 2015 State visit between Presidents Barack Obama and Xi Jinping, including managing the U.S.–China High-Level Dialogue on Cybercrime and Related Issues for DHS. Prior to joining DHS, Naomi served as a staffer on the Senate Committee on Homeland Security & Governmental Affairs and as a research assistant at the Center for Strategic & International Studies (CSIS). Naomi holds a Bachelor’s degree in English and Master’s in International Affairs & National Security. In 2011, she completed intensive Chinese language training at Peking University. Naomi speaks advanced Mandarin and French and is a native of Connecticut.

Dr. Yoon Young-kwan served as the inaugural Senior Visiting Scholar with the Korea Project at the Harvard Kennedy School’s Belfer Center for Science and International Affairs. He also served as the 2021 Kim Koo Visiting Professor at the Korea Institute at Harvard University. He is Professor Emeritus in the Department of Political Science and International Relations, Seoul National University. He served as Minister of Foreign Affairs and Trade of the Republic of Korea from 2003 to 2004. Before he joined the faculty of Seoul National University in 1990, he taught at the University of California at Davis. He served as Korea’s Eminent Representative to, and co-chair of, the East Asia Vision Group II from September 2011 to October 2012. He has published several books and some 70 articles in the fields of international political economy, Korea’s foreign policy, and inter-Korean relations, some of which appeared in World Politics, International Political Science Review, Asian Survey, and Project Syndicate. Dr. Yoon received his doctoral degree from the School of Advanced International Studies at Johns Hopkins University.

Consul General Kijun You serves in the Korean Consulate General in Boston. His previous positions in the ROK Ministry of Foreign Affairs include: Director-General for International Legal Affairs; Deputy Director-General for International Legal Affairs; Minister-Counsellor, Korean Embassy in the Republic of Kenya; Counsellor, Korean Permanent Mission to the United Nations in New York; Director, Territory and Oceans Division, Treaties Bureau. Consul General You received his B.A. in French Language and Literature at Korea University, Master of Law from Korea University, LL.M. from the University of Edinburgh, and LL.M. from the London School of Economics and Political Science.

OFR Working Paper Finds Cash Biases Measurement of the Stock Return Correlations

[from the U.S. Office of Financial Research]

Today, the U.S. Office of Financial Research published a working paper, “Cash-Hedged Stock Returns” [archived PDF], and an accompanying blog (below), regarding firms’ cash holdings and the implications for asset prices and financial stability.

Cash holdings are important for financial stability because of their value in crises. Corporate cash piles vary across companies and over time. Firms’ cash holdings typically earn low returns, and their cash returns are correlated across firms. Thus, the asset pricing results are important for investors managing a portfolio’s risk and policymakers concerned about sources of vulnerability.

The working paper [archived PDF] shows how investors can hedge cash on firms’ balance sheets when making portfolio choices. Cash generates variation in beta estimates, and the working paper decomposes stock betas into components that depend on the firm’s cash holding, return on cash, and cash-hedged return. Common asset pricing premia have large implicit cash positions, and portfolios of cash-hedged premia often have higher Sharpe ratios, used by investors to understand a return on investment, because of the correlation between firms’ cash returns. The paper shows the value of a dollar increased in 2020, and firms hold cash because they are riskier.

Read the working paper [archived PDF].

OFR Finds Large Cash Holdings Can Lead to Mismeasuring Risk

[from the OFR blog, by Sharon Ross]

Cash is necessary for companies’ operations. Firms use cash to make payments, finance investments, and manage risk. But holding cash comes at a cost: its low pecuniary return. Published today by the OFR, the working paper, “Cash-Hedged Stock Returns” [archived PDF], shows that the cash returns of publicly traded, non-financial firms are correlated. Since cash returns are a part of equity returns, investors that are using equity return correlations to measure risk can mismeasure risk.

We show the importance of cash for systemic risk by documenting the value of cash in crises, showing that firms hold cash in part due to risk management and studying how cash biases the measurement of the interconnectedness of stock returns. The consequences of cash are important for policymakers monitoring aggregate risks, and sources of market vulnerability and for investors making portfolio choices.

Cash holdings are important for financial stability because of their value in crises. Several papers document a “dash for cash” during the initial panicked stages of the coronavirus 2019 (COVID-19) pandemic when firms rushed to hold cash in their coffers. The dash for cash was driven by firms drawing down on lines of credit from banks, which in turn affected bank lending. The dash for cash highlighted the critical role of firms’ cash holdings and returns in understanding risk in the financial system.

We show the value of a dollar increased in 2020. Moreover, our results show that firms may hold cash because they are riskier, as opposed to firms with high cash shares being less risky due to their cash holdings. Our results are consistent with a precautionary savings motive for holding cash. In other words, firms hold cash for risk management, in part to weather bad times.

Cash is a growing share of public firms’ assets. The value-weighted U.S. stock market held 22% of its assets in cash in December 2020 compared to 8% in the 1980s. An investor buying the market in 2020 ends up with an implicit cash position three times larger than in 1980. Individual firms vary in how much cash they hold. As cash holdings increase, it is important to understand how cash holdings affect returns, which in turn impacts who chooses to invest in the firms.

Cash returns are correlated across firms, and cash biases measurement of the interconnectedness of stock returns, making it a risk for financial stability. As a result, the asset pricing results are important both for investors managing portfolio risk and for policymakers concerned about interconnected returns.

We argue that the value of corporate cash is distinct, and we can separate the value of cash and the value of the firm’s primary business. We show how investors can explicitly account for the effect of corporate cash holdings when forming a portfolio. When an investor owns stock in a company with substantial cash, the investor has an implicit cash position managed by the company—something the investor might not intend. We argue that investors should account for the effect of corporate cash holdings in the portfolio decision to measure a portfolio’s risk. Firms’ cash management is not consistent across firms, and investors may want to manage their cash positions themselves. Policymakers should be aware of investors’ choices in cash because of investors’ portfolio risk and the implications for aggregate risk.

We separate a company’s stock return into its cash and non-cash components, and we show that using the non-cash return gives a more informative correlation structure across stocks. In other words, if investors take out the correlated cash returns, the remaining return is less correlated, yielding portfolios that provide better diversification. We show how cash holdings and returns affect the returns of standard asset pricing strategies and asset pricing models like the capital asset pricing model (CAPM).

As cash holdings of public firms increase, it is important that policymakers understand how these increases impact stock returns for both individual firms and the aggregate market. Cash returns are correlated across firms, and cash biases the measurement of the interconnectedness of stock returns. This correlation is important both for investors who are managing a portfolio’s risk and policymakers concerned about sources of vulnerability stemming from interconnected returns.