One would think so. But Dinuk Jayasuriya of WB says the relation is not as robust.
Archive for the ‘Policy’ Category
This is a terrific speech from Fed Governor Daniel K. Tarullo. He gives you a different perspective (not entirely new though) on thinking about financial firms and their regulation.
He says economists should use insights from Industrial Organisation Economics (IO) to help understand the developments in financial markets:
I have not blogged about the papers presented at Jackson Hole Conference – 2011 which is bad.
This paper by Stephen Cecchetti, Madhusudan Mohanty and Fabrizio Zampolli is a must read. It looks at debt levels in all 3 sectors of economy – households, public and private- of various advanced economies. They also look at threshold levels of debt for each of these sectors to understand when high debt starts impacting growth.
This is a nice paper from Barry Eichengreen and Nergiz Dincer (unable to find a free version).
Well there is huge debate on who should be looking at banks post the crisis? Independent regulator in form of FSA failed in UK whereas Fed and other multiple regulators of US failed in USA. Despite different findings, it is being increasingly felt that central banks should be bank supervisors. They have natural advantage to do so as they are lenders of last resort and should know how banks are faring.
A superb critique from Barry Eichengreen on the topic.
One keeps hearing cries for going back to gold standard but I did not know it is really popular with some US state Governors and officials. So much so, some states have actually introduced gold standard (and its variants) in their states!
Here is another superb article from City Journal. This one is by Claire Berlinski who is a contributing editor.
She says seismic risk poses the biggest risks for cities in the world. There are two reasons for this. One, an earthquake causes more damage than anything else. Two, most big cities end up naturally being in the seismic danger zone. People like to live near water and fertile ground. Over the millennia, seismic activity creates coasts, valleys that channel water, temperate microclimates. So people come and settle at these places and become big cities. As per Claire, 8 of top 10 cities are in seismic zone.
So cities should be working to address this huge risk. And there are some good examples from recent Japanese, NZ and Chilean earthquakes:
This is the title of my new paper. It looks at the Fed’s new communication strategy of keeping policy rates at near zero till mid-2013. It compares this with Bank of Canada and Bank of Japan’s communication policies. It ends with comments on recent Fed dissents.
Comments/suggestions/criticisms are welcome..
SS Aiyar writes this rather surprising paper. Like the several papers on Indian growth story, he discusses Indian economy over last twenty years. He says Indian reforms is about two things – economic reforms and governance reforms. Latter lags big time over former as econ reforms have led to growth of 8.5%.
Ken Rogoff tries to settle the debate on severity of the downturn and policy measures needed (HT: Divya Iyer).
He says the first thing to fix is the name – Great recession. By recession people simply assume a cyclical downturn which has standard policy measures (cutting rates, some stimulus etc). This is anything but a simple recession. This approach in turn has led to policies etc which are not suited for the harsh times:
This is a pretty intersting and sad reflection of what was happening before the crisis.
Wells Fargo was imposed a $85 million penalty for pushing prime loan customers into subprime loan categors and falsified loan docs as well. All for making more salaries. This is the largest penalty on a consumer protection case:
The research on Great Depression continues and gets even more interesting.
Economic historian Douglas Irwin looks at the issue of Smoot Hawley Act (SHA) in what looks like a super book on great depression. The intro free chapter is here. Here is a videowhere Irwin discusses the book at Cato. It has a video of a movie starring Ben Stein (1986 movie — Ferris Bueller’s Day Off) and a debate between Al Gore and Ross Perot in 1990s over NAFTA. In both SHA is criticized and suggested as a main reason for the Great Depression.
In the book Irwin says, S-H act criticism is overdone. He did argue the same in a paper written with Eichengreen and expands on the idea in this book.
What are the main ideas?
- SHA was not in response to economic contraction. It was to gain political advantage and support agricultural sector. The latter was doing poorly and the act was initially to raise tariffs in agri sector. Infact it was proposed in peak of the business cycle not middle of depression as it is perceived.
- As it always happens finalisation of the Act took time and by that time manufacturing items were added as well. There was lot of lobbying and rent seeking to get one’s items included.
- By the time it was enacted, depression conditions had started to set it. Other policymakers enacted tariffs looking at US leading to further issues. So, it did lead to international reactions.
- Economists opposed the Act but was still done leading to further conformations that politicians do what leads to winning elections. Economics is no where in the picture.
- So though it was a factor in great depression, it was not responsible for it. GD would have remained GD without SH act as well. Monetary and financial factors set up the depression.
- The debacle of the Act led to a change in policymaking design in US. Congress did not look at trade policy and it was assigned to US president to deal with trade policy issues
- One paper said Fed doubling reserves in 1937-38 was not responsible for double dip depression as banks had raised reserves earlier.
- Another paper says Fed may have committed mistakes but Atlanta Fed did help by providing liquidity to struggling banks.
Because the Constitution provides that revenue measures must originate in the House before going to the Senate, tariff legislation was often named for the Ways and Means Committee chair first and the Senate Finance Committee chair second. This implies that the legislation should be known as the HawleySmoot tariff, but Smoot played such a large role in its passage that contemporaries began to refer to it as the Smoot-Hawley tariff.
India’s Ministry of Finance initiated a few measures to cut its expenditure mainly the revenue expenditure.I saw some of these measures earlier as well but were not successful it seems. This time we have some more measures and there are efforts to monitor them as well.
What are the measures?
Gulzar has a fab post on the topic. s
He points how the two areas differ in their traffic management systems.
The prevailing traffic management paradigms on both sides of the Atlantic could not have been more contrasting. On the one side American cities are implementing policies that adapt cities to accommodate driving (by intelligent transport systems to improve traffic flow and apps to help drivers find parking spaces), while on the other hand European cities are creating environments that are hostile to cars (congestion pricing, outright car bans from green and pedestrian zones, closely spaced red lights, speed and parking restrictions, pedestrianization etc).
The strategies employed by European cities aims to make car use expensive and difficult and thereby force them into using other modes of transport.
As Europe was built much before US, it has narrow roads and needs to stop congestion. US has much wider roads barring old areas and hence has different policies. In Swiss, it is not odd to see parliament members take trams to work.
Barring this there are some other interesting restrictions as well:
Further, even as American cities try to synchronize green lights to expedite traffic flow, European cities have been shortening the green-light periods and lengthening the red light times so as to reduce waiting times for pedestrians. In stark contrast to countries like US and India which stipulate minimum parking space for apartment units and new buildings, building codes in Europe cap the number of parking spaces in new buildings to discourage car ownership. Store owners in Zurich who had worried that road closings and pedestrianization would reduce business have been pleasantly surprised to see 30-40% increase in pedestrian traffic.
Then in Europe no one really breaks these rules which is very different from the experiences in India where traffic rules are not followed. Infactit is rare for people following the rules.
St Louis Fed hosted a conference on the topic.
Papers presented look at whether QE worked or not in variety of ways — domestic economy, international economy, financial markets etc. Papers say QE worked in most of these cases.
Speech by St Louis Fed President James Bullard is a nice one full of graphs showing QE2 worked. He asserts the evidence shows central bank is not bound at zero rates.
Well, there is just one thing. Most of the evidence is related to financial markets. It is being assumed that low rates would have helped real economy. We need more evidence on that..
Most must have read this superb piece from Arvind Subramaniam. He points to some initial results from his ongoing research on Indian economy.
- First growth in states has been double in 2001-09 compared to 1990s.Barring HP and Rajasthan, all states show higher growth
- However divergences in growth patterns continue. Inequality between laggard and frontrunner states remains and inequality has actually increased.
- Interestinlgy globalization has caught up with states as well. In this crisis, Maharashtra, Karnataka etc were impacted more than say Bihar and Gujarat. Globalisation works both ways…
- Finally, to the topic of the post. He says states with better demographics and having younger population (like Bihar, UP etc) fared worse than older states of Karnataka, Maharashtra etc. He says:
Glaesar points to five books on urban development/cities one should read.
- Nature’s Metropolis By William Cronon
- Plunkitt of Tammany Hall By William L Riordon
- The Philadelphia Negro By W E B DuBois
- The Urban Transportation Problem By John Robert Meyer, John Kain and Martin Wohl
- The Death and Life of Great American Cities By Jane Jacobs