Archive for the ‘Economist’ Category

A Comparison of Programming Languages in Economics..

July 4, 2014

Keynes once famously said of the desired qualities for a top economist:

The master-economist must possess a rare combination of gifts …. He must be mathematician, historian, statesman, philosopher — in some degree. He must understand symbols and speak in words. He must contemplate the particular, in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must be entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood, as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.”

We did not have computers then otherwise he would have added computer programmer to the list as well! Moreover, his quote anyways talks about things like abstract, flight of thought etc..which programmers do have. Atleast those thinking about lionking economic issues and computer programming need to surely have.

So, there is this interesting paper which compares how various programming languages fare in trying to address a common problem:

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Importance of understanding the principles of regulation by the regulated…case from India

July 3, 2014

An interesting speech by G. Padmanabhan of RBI. The speech is on corporate governance, the recent companies act etc.

In the middle of the speech he discusses regulation and narrates this interesting case:

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Inflation Is “Not” always and everywhere a monetary phenomenon..

July 3, 2014

Do see the not in the phrase.

Antonella Tutino and Carlos E.J.M. Zarazaga of Dallas Fed undo the famous Friedman quote in this short note. They say both the recent US experience and German experience in 1920s refute the Friedman quote somewhat. In US case, despite surge in money supply, there is no inflation. And in Germany, inflation was much higher than money supply:

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When civil society protesters question ECB members over latter’s monetary policy..

July 2, 2014

The elitists central bankers are getting the fury doze which is usually reserved for politicians. And rightly so, given how important central bankers have become over the years without the kind of accountability faced by politicians.

It was really interesting to read this interview of Benoît Cœuré of ECB conducted by 2 members of protest group in Europe. It was published inc Süddeutsche Zeitung (SZ), so SZ is also asking the questions.

SZ: Mr Cœuré, have you ever taken part in a demonstration?

Cœuré: Since I’ve been working at the ECB, no. I have taken to the streets in the 1990s, including to campaign against the French government’s anti-immigration laws. But that was long ago.

SZ: For you, Mr Rätz, demonstrations are part of your job description. What is your mission?

Rätz: Mission is something of an exaggeration, but standing up for your views in public is part of democratic and civic action. Demonstrating is an important tool in this respect, and it should be used.

SZ: Mr Aschmoneit, you define the right to demonstrate very broadly and propagate civil disobedience. What justifies this right in your view?

Aschmoneit: I came to this interview by train. On the way, a respectably dressed man in his early seventies came over and I moved over so that he could sit down. But he didn’t want to. He said that he wanted the deposit bottle that was in the bin in front of me. A poor, old man who has to collect bottles to get by. This reminded me once again that what we are doing is legitimate, moving from protest to resistance. We will interfere with and obstruct the opening of the ECB’s new premises because what happens at the ECB is immoral. We want it to stop.

These protesters blame the ECB for the evils surrounding European economy. Some tough talks this:

SZ: Mr Rätz, what irritates you the most about the ECB?

Rätz: For us, it is the role that the ECB is playing within the Troika. Together with the International Monetary Fund (IMF) and the European Commission, the ECB pursued a policy that had dramatic – in some cases fatal – consequences in the crisis countries. In Spain, 400,000 people have been driven out of their homes; in Greece, almost one-third of the population no longer has access to the healthcare system and 40% of its people are poor. All of this is clearly linked to the Troika’s policy. It is therefore a bit ripe to say that the ECB only wants the best. I believe you, Mr Cœuré, as a person, but the ECB is contributing to division in Europe, and not to cohesion.

Aschmoneit: The IMF, which is not known for its left-wing extremism, says that saving is wrong. There is far too little investment. The International Labour Organization (ILO) says that the unemployment rate in the euro area has shot up and that one-quarter of the population is seriously threatened by poverty. The ECB is creating winners and losers from the crisis. Last year, the wealth of the rich in western Europe rose by 5.2%. The US investor Warren Buffett has said that there is class warfare and that it is his class, the rich class, that is winning. Your policy, Mr Cœuré, is geared towards reducing large portions of the population to poverty and safeguarding the profits of a few.

Rätz: It’s not all about the citizens of Europe for the ECB – they’re not even being asked. Let’s take Greece, for example. Since 2010, its economy has shrunk by 25%. This year, it is expected to grow by 0.7%, which is extremely little. We’re not going to live to see Greece recover. The people of Greece are not being asked about the Troika’s recommendations, even though the measures have a profound impact on society: salaries and pensions have been reduced, unemployment benefits have been cut and hospital care has deteriorated. That is not a policy for the people, it is a policy for the banks.

In the middle ECB member defends ECB saying usual things…so have skipped them,,

Nice bit.

Usually such criticism is meant for the politician. We see politicians take on questions from protesters. I have never read a formal interview of a central bank by civil society protesters criticising the central bank. It seems as if central bankers have become the neo-politicians for the amount of media space they generate. Who really cared what central banks did around 15-20 years ago?People are now taking note on who is trying to call the shots in their economies.

Also interesting to see Coeure agreeing to be a part of the interview.

Rethinking economics after the crisis — Making economics more relevant for policy..

July 2, 2014

A superb speech by Benoît Cœuré of ECB. It is really important that economic policymakers also reflect on the state of the profession barring a few academicians who are often ignored. With people like Coeure talking, hopefully more it reaches more ears.

He says policymakers do not have the luxury if academicians..

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Should we have minimum prices for alcohol?

June 30, 2014
Joan Costa-i-Font of LSE thinks having a minimum price for alcohol (albeit at higher levels) will help lower alcohol consumption. 
This is surprising given most of the time such bans fail. Companies/people always have ways to work around the ban.

Moving on to behavioral indifference curves…

June 25, 2014

Prof. John Komlos of Ludwig-Maximilians University has this interesting paper.

He says it is high time we move onto behavioral indifference curves (which have kinks) from the usual indiff curves (which are smooth downward sloping):

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Revolving door between finance executives and financial regulation..who benefits and how?

June 24, 2014

A really interesting paper given the times we are in. Despite the huge criticism of finance sector, both its employees and regulators continue to remain coveted jobs.

The authors build it as inflow vs outflow kind of problem:

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What happens when divorce laws switch from mutual consent to a unilateral regime?

June 24, 2014

Interesting paper by Raquel Fernández and Joyce Cheng Wong.

One is always looking for certain natural experiments to check the impact. Change in policy regime is like a natural experiment. So, in this paper authors look at the impact when divorce regime changed in US. Earlier, regime was mutual consent which meant approval for both partners was need. Then it changed to unilateral where just one party had to agree. What was the socio-economic impact of such changes?

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History of bankruptcy in early modern europe

June 20, 2014

EH.net keeps one abreast of some really interesting books on econ history. Its book review section is really top stuff.

In the latest book review, it points to this book which looks at history of bankruptcy in early modern Europe. It is reviewed  by Bradley A. Hansen of University of Mary Washington.

I mean why study of bankruptcy is important? Well, it gives us tremendous insights:

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Reform of the Anglo-Saxon economics curriculum

June 20, 2014

Robert Skidelsky joins the debate over reforming economics pedagogy. This is followed by interesting comments from Brad Delong. With so many joining the chorus for change, not sure when it will change? And this is not just about the anglo-saxon world. It is also about other parts of the world where what is taught in the west is blindly copied. Atleast in the west, some people understand the limitations of current economics teaching, in the other places this is not even understood. There is just competition on most places to keep pace with the west..

Skileddesky says economics teaching should be more pluralistic:

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Does Europe face the prospect of a lost decade?

June 19, 2014

Christian Noyer of Banque De France asks this q in a recent speech.

He says lost decade could happen in Europe for two reasons (though adds it is not limited to Europe alone):

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World Cup Football: 770 Billion Minutes of Attention (Economics)

June 19, 2014

Thales Teixeria of Harvard has some interesting facts/trivia on the football world cup and how it is all about attention economics.

He says FIFA world cup is the 7th largest business in the world on annual basis:

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Raising female economic participation in India..

June 18, 2014
Piritta Sorsa of OECD Economics Department compares the women participation in workforce in India and BRIC members. It is the lowest in India.
She says by getting more women into workforce will boost GDP by a few points:
Female labour market participation in India is lower than in other emerging markets. This column discusses the dynamics and causes of this issue. Many women have dropped out of the labour market in the recent years, or work in low-paying jobs without social benefits and with large wage differentials. Raising female labour force participation could boost economic growth up to 2.4% with a package of pro-growth and pro-women policies.
There is a need to work on the entire ecosystem to get more women enrolled into workforce. It will not just happen by opening/reserving more jobs for women.

Albert Hirschman’s hiding hand and behavioral economics

June 18, 2014

An interesting article by Prof. Cass Sunstein.

This article is a preface to the Hirschman’s  classic on development (haven’t read though):

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Why standard macro models fail during crises?

June 18, 2014

I mean just because we think this time is different and pile on expectations. We fail to appreciate that there could be events which could just scuttle the whole thing. No model can incorporate the entire gamut of uncertainty and uncertain events.

David F. Hendry and Grayham E. Mizon say these basic ideas in a more technical way:

Many central banks rely on dynamic stochastic general equilibrium models – known as DSGEs to cognoscenti. This column – which is more technical than most Vox columns – argues that the models’ mathematical basis fails when crises shift the underlying distributions of shocks. Specifically, the linchpin ‘law of iterated expectations’ fails, so economic analyses involving conditional expectations and inter-temporal derivations also fail. Like a fire station that automatically burns down whenever a big fire starts, DSGEs become unreliable when they are most needed.

Call them whatever- DSGE. ABCD, XYZ etc…There are limitations on what they can achieve and all such models should clearly specify what they cannot do or can fail potentially. In many ways this fascination for models etc is this fascination for making economics a science and having physics envy. When the main agent here is individual who can react really unpredictably, we can never be sure the way these models will work. But despite all this, we just believe so much in these models.

This does not mean we should ignore economic modelling. Not at all. Just that we should know their limitations which could be serious at times..

China may soon have no choice but to let its currency float..

June 17, 2014

Yu Yongding of Chinese Academy of Social Sciences ( a solid China expert) predicts China could soon allow its currency to float. Not that it wants to but it will be forced to..

He begins saying China so far is managing all the three legs of Mundell Trilemma:

The Nobel laureate economist Robert Mundell showed that an economy can maintain two – but only two – of three key features: monetary-policy independence, a fixed exchange rate, and free cross-border capital flows. But China is currently juggling all three – an act that is becoming increasingly difficult to sustain.

….This raises an obvious question: How has China managed to defy the Mundell trilemma by maintaining all three policy objectives simultaneously? The answer lies in China’s sterilization policy.

China has run a capital-account surplus for most of the last 30 years, and a trade surplus every year since 1993. The PBOC keeps the exchange rate stable by intervening heavily in the foreign-exchange market, creating so much liquidity that the authorities must engage in massive sterilization to avoid overshooting the targeted increase in the monetary base.

In China, unlike in advanced countries, monetary and sterilization policy are often one in the same. The degree to which monetary policy is expansionary depends on the degree to which the liquidity created by currency-market intervention has been sterilized.  

He says costs of sterilization are higher than the benefits and are actually distorting the economy. So he hopes and predicts that China will soon allow the currency to float:

Nonetheless, though predictions that China would abandon its exchange-rate controls in order to uphold monetary autonomy have proved wrong over the last decade, this time may be different. With China’s liberalization of interest rates and short-term capital flows making it increasingly difficult for the country to juggle Mundell’s “irreconcilable trinity,” one hopes that Chinese leaders will finally allow the renminbi to float, while keeping in place existing capital controls.

The day this happens it will mark as quite a momentous day for history of macroeconomics..

Importance of framing questions – an interesting example..

June 17, 2014

There is another interesting debate over whether the western world has run out of major innovations and are now going to be on a steady decline. Robert Gordan has been making this argument for a while. Ofcourse, there are people who disagree and say innovation likely to continue and generate future growth. Here are the debates — one, two, three.

Coming to the title of the post. Prof Gordon often asks this question which innovation do you value most – A toilet with piped water or a smartphone?

Are all of mankind’s best inventions behind us?

Economist Robert Gordon thinks so. When giving speeches, the Northwestern University professor often flashes a photo of a smartphone and a toilet on a screen and asks his audience what they would do if they had only two options: Keep everything invented up until 2002, or keep everything invented up until today—but give up running water and toilets. The answer to him is obvious: Indoor plumbing changed how people live, he says, smartphones are just a handier form of what already exists.

Which would you choose?

The answer here most likely (atleast for me) is toilets. Here there is a case of lack of supply as well. Much of India does not have toilets but phones have become too common.

But the same post takes a poll but frames the question differently:

Which invention of the past would you rather live without?

Here the choice is smartphones not toilets. But unknowingly you end up ticking on toilets!

Importance of framing the questions and nudging people into making choices.

 

Simple Presentation explaining Pikettymania…

June 17, 2014

Justin Wolfers does a great job explaining the logic behind Pikettymania which has gripped the world economic discussions. (HT: Marginal Revolution)

Really useful..

 

Book Review: Fatal Equilibrium

June 16, 2014

Just finished reading the second of the murder mysteries written by Marshall Jevons- Fatal Equilibrium. The blog reviewed the first mystery.

This one is bit of drag as the plot begins much later. The authors begin with the murder right away but takes a while before the plot starts and thickens. And suddenly it is all over making you wonder and wanting more.

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