Archive for November, 2011

Why hedge funds performed better in 2008 crisis and will banks learn the lessons?

November 30, 2011

As the 2008 crisis unfolded most thought hedge funds would lead to further chaos with their highly leveraged and risky structures. But this was not to be barring a few cases here and there. Why so?

Dallas Fed note tells the story. The hedge funds post LTCM crisis have made efforts to diversify and not follow the herd mentality:

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RBA’s new liquidity facility to support Basel-III norms

November 30, 2011

Basel-III implementations are kicking in and are hitting economies differently.

Take Australia’s case for instance whose regulator started work on getting Basel-III implemented in their banks. Under Basel-III we have two ratios to strengthen liqidity conditions of banks:

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Growth rate in India’s states in 2000s – A case of divergence or convergence?

November 30, 2011

Utsav Kumar and Arvind Subramanian write this interesting paper on India growth story. They look at states performance in the high growth decade 2000s and claim to be the first paper to do so. There are number of papers which have looked at states (many references are there in the paper) performance but all are before 2000s.

There are four broad findings (covered in BS as well):

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Effects of fiscal policy – Seperating ideology from empirics

November 29, 2011

A nice paper/speech from Team Obama’s ex chief economist – Christina Romer. This has been blogged about much. Krugman, Gulzar and John Taylor (responding to his criticism in the paper) have blogged about it.

Tons of research is to follow on whether fiscal policy worked or failed in this crisis. All I can say with 90% confidence is despite so much research, we can never be sure whether fiscal policy worked in this crisis.

However, this paper is a very good one (in plain english) and explains the basic problems with research on fiscal policy.

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How should the Eurozone fiscal union/finance ministry look like?

November 29, 2011

Benedicta MarzinottoAndré SapirGuntram B. Wolff  of Bruegel institute throw some light on this hot issue.

Basically, it has to be like any other finance ministry/treasury responsible for stability of the economy. Here as we are talking about Europe, this should also mean it has veto powers over budgets of national finance ministries that could create instability in Euroarea  as we are seeing today.

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NY Fed’s introspection in failure to forecast the Great Recession

November 28, 2011

Superb post by Simon Potter of NY Fed.

He points to NY Fed forecasts in 2007 and how they missed the bus. They were right on inflation but missed the numbers big time on growth and unemployment:

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Creating a new jungle book to understand economics

November 28, 2011

RBI Governor Subbarao tries to bring some humor to the Indian growth story.

India growth has been called an elephant for a while with its huge potential and lumbering walk (read growth). And then suddenly it started dancing.

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Over-optimism in Economic Forecasts and Its implications

November 28, 2011

This is a serious problem for  most countries. Policymakers give overoptimistic targets for growth and fiscal deficits and land up in trouble later.

Jeffrey Frankel documents this problem in this superb paper (cannot find free version). A short summary is here. He says these overhyped estimates firstlead to complacency and then to higher tax cuts and excessive spending. The end result is even higher deficit. He estimates these findings for 33 countries grouped into developed, developing and commodity rich:

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Experienced advice for “lost” graduate students in Economics

November 25, 2011

Ariel Rubenstein of Tel Aviv University offers some superb advice (Via Mankiw’s blog).

How the Indian government is turning private goods into public goods

November 25, 2011

A fab piece from Siddharth Singh of Mint.

He gives a superb perspective to this whole problem with governance in India. He says what is happening is this conversion of private goods into public goods space. This not just distorts markets but the whole policy space:

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Impact of second additional demand of expenditure 2011-12 on fiscal deficit

November 25, 2011

Today, the government announced the second supplementary demand foe expenditure for 2011-12.  Basically this supplementary demand is for additional expenditure outside the budget and has to be approved by the parliament.

For FY 2011-12 Government budgeted expenditure of Rs 12,57,729 Cr. Plan was Rs 4,41457 Cr and Non Plan was Rs 8,16,182 Cr.

The first additional demand was announced in Aug-11. Here is how the numbers added up post first supplementary demand:

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Known Knowns and Known Unknowns in economic and equity research

November 24, 2011

Neel Kashakari of PIMCO is just too optimistic on known knowns in economic research this interesting essay.

He begins his article saying people love bold predictions with some coming right and some falling flat.

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Who is screwing up more: Europe or the US?

November 24, 2011

A million dollar q asked by Jeff Frankel. To most, it is like they are competing.

Frankel says it is US which is screwing up more:

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How Occupy Wall Street movement is changing menu prices

November 24, 2011

Superb post from WSJ Blog. Some guys are really creative and marketing savvy:

Occupy Wall Street, if it’s done nothing else, has put its 99% vs. the 1% mantra into conversations all over the country.

At BLT Steak, a Washington restaurant just a block off the well-known K Street lobbyists’ corridor known for its politically themed burgers, the menu offers “The 99%,” a 6 oz. cheeseburger with, of course, American cheese on whole grain bread. Price: $9.99.

It also offers “The 1%.” It is described on the menu as an “8 oz. Kobe burger, braised Kobe short rib, foie gras, gold leaf, Grey Poupon.”

The price: $58.

Am sure even the 1% guys will go for the 99% burger…such are the times..

Following your passion is the key to success

November 23, 2011

Came across two nice articles.

First on Steve Jobs who loved  design and style and followed it to give us the superb apple products.

And second one on how a Phyics grad at Harvard shifted to writing comedy.

Initially, both were seen as careers which few appreciate. But got them  fame bundled with tons of money ..

Is taking risk a useful economic activity?

November 23, 2011

Andrew G Haldane of BoE has been criticising financial sector and its too big to fail burden.

In this article with Vasileios Madouros he explains some key ideas behind his thought. He says before the crisis everyone believed finance added huge value but this has crashed post-crisis. Why? He says the value of finance was overvalued to begin with.

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How much capital do European banks need?

November 23, 2011

Viral Acharya of NYU does a real good job of putting numbers to the hot financial problems. He is more like a market economist working in financial firms and not really a university.

In a recent article along with Dirk Schoenmaker and  Sascha Steffen he estimates the capital needed by European banks. Apart from this the trio also tells you why the recent measures by EU policymakers are just plain wrong.

First, why the recent measures to prop up banks are wrong?  EU policymakers said:

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How rent-seeking is present even in selecting World Heritage sites and how does one solve it?

November 22, 2011

Bruno Frey  of University of Zurich (and others) have been doing some interesting research on economics of  World Heritage sites and there are some interesting findings. For instance this paper shows that apart from historical reasons some human factors (frailties rather) are responsbile as well:

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The Neuroeconomics Revolution

November 22, 2011

Robert Shiller writes a short piece on how economics is expected to change as scientists try and map and understand the human brain.

He begins saying for any science to prosper, it is important that new areas are added and linked to it. Linking neural technology to economics or neuroecononmics is one such field:

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Do lessons from Argentina apply to Greece?

November 22, 2011

This is the title of my new paper… Comments are welcome


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