Taiwan's economy is in good shape with more-than-healthy productivity and output, but the government should be meticulous when making policies, as bad policies can reduce productivity, Edward Prescott, the 2004 Nobel laureate in economics, said in Taipei yesterday.
The government has been worrying that the industry migration to China would continue to shrink the nation's trade surplus and thus affect its economy, but Prescott said the trend does not present a problem.
Like Taiwan, the US has moved a lot of investments and jobs to India to save costs, especially in the software industry. But it has proven that there are big potential gains in India to develop better products, Prescott said. Besides, there is no solid statistical support for the large-scale outsourcing directly impacting the US job market, he said.
At yesterday's press briefing, Prescott also praised the government's financial reform by halving the number of financial holding companies. He said that to become a major global financial center, Taiwan needs big players to compete with international competitors.
Prescott, also a senior monetary adviser to the Federal Reserve Bank of Minneapolis, is in Taipei to attend the "2005 Chinatrust Global Leaders' Forum" today, where he will deliver a speech on the world's economic outlook, with reference to Taiwan.
Responding to a question whether the Chinese yuan's value will keep rising, the Nobel laureate said that the decision depends on the Chinese government. The previous slight revaluation of the currency was a brilliant and largely symbolic move to reduce anti-China sentiments in the US and Western Europe, and even Mexico, he said.
Furthermore, the Chinese government has made more efforts to balance trade between the US and China by investing abroad and buying aircraft from US aircraft maker Boeing Co, instead of letting huge amounts of dollars sit in the central bank of China, Prescott said.
As the US Federal Reserve may hike its benchmark interest rates for the 10th straight time next Tuesday because of surging oil prices and wages, Prescott said the trend may carry on to defeat inflation.
"I'll not be surprised if there is another interest-rate increase in another six weeks," Prescott said.
As for the question of who may become the next chairman of the Fed after Alan Greenspan, "well, I know it will not be me," he said.
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