Emergence of the Fed as a modern/independent central bank

April 16, 2014

Bernanke yesterday lectured at Mumbai saying the new government should ensure the autonomy of RBI continues. Owen Humpage of Cleveland Fed has this very useful paper on how Fed became a so-called modern independent central bank.

Humpage says one is not sure when Fed became a truly independent central bank. The concept of independence is a mutable and fragile one. The paper leans gives a political economy perspective of independence and show how US govt used Fed as an agency to fulfil the overall economic goals:

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History of virtual currency and whether these currencies will succeed?

April 16, 2014

Two articles. First by Financial Cryptography website. It says this bitcoin thing is nothing but a repitition of history. The second is by Daniel Thornton of St Louis Fed who discusses what makes these currencies tick. So first looks at history and second looks at the future..

First a bit of history:

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How Important Are Hedge Funds in a Crisis?

April 15, 2014

A nice research note from FRBSF econ - Reint Gropp. 

The author says hedge funds play a critical role in fueling the crisis:

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The benefits of not being so independent – a case of People’s Bank of China..

April 15, 2014

Much like anything Chinese, there is this whole mystery and aura around the way PBOC functions. There is little understanding on how it conducts monetary policy and goes around its job. The speeches from the central bank are few and frugal too making it even more difficult.

So in this rare intereview PBOC chief  Zhou Xiaochuan speaks on the independence of the central bank:

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From spillovers to spillbacks…

April 15, 2014

Just missed this over the long weekend.

IMF seems to have introduced another term called spillback.

Spillovers mean the positive/negative impact of a policy on other countries. Spillbacks is the impact of withdrawing/exiting from ultra-easy policies on other countries. I mean it is just another kind of spillover really..

The central bankers were not amused with another addition to the lexicon…

The impact of BOJ bond buying on Bond markets..

April 15, 2014

Interesting bit of news from Japan.

WSJ BLog points how the new 10 year JGB did not trade at all for a whole day:

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From a one handed economist to an economist with many hands like a Hindu god …

April 14, 2014

Came across this interesting and dated speech of Nemat Shafik, ex IMF DMD and now BoE’s Deputy Governor. The speech was given at a conference in Delhi organised by CAFRAL.

She says:

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Why do we still use paper money?

April 11, 2014

Richard Rahn of Cato looks at this interesting question.

And in typical Cato/Hayek  spirit blames the govt for ensuring this continues…

Why Do We Still Use Paper Money?

April 11, 2014

Richard Rahn of Cato Institute asks the question:

Paper currency is dirty and is a major transmitter of disease as it goes from unwashed  and to unwashed hand. It is easily lost and stolen, and can be easily destroyed by getting wet or burned.

It physically wears out in a short time and is costly and troublesome to replace. So why do we still use the filthy stuff in the electronic age?

He says interestingly, that govt also prefers electronic money which it can monitor:

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Why we’re in a new gilded age?

April 11, 2014

Krugman reviews the famous Piketty book. And what a title for the book - Capital in the Twenty-First Century. I have not read the book so far and am waiting to get my hands on it.

But Krugman does a good job of explaining the book. It seems it explains the  rise in inequality in Europe in 1920s etc. But does not do as great job for explaining the rise in US.

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What happens when the heart available for transplant is that of 75 year old central banker?

April 11, 2014

Usually brilliant and funny Richard Fisher if Dallas Fed has this interesting speech. He discusses QE, forward guidance, hype around central banks and so on..

He narrates a story told by Mario Draghi at a conference:

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How much do countries benefit from membership in the European Union?

April 10, 2014

For a moment I thought, could we still have research which looks at this question? But then I looked closer and realised it is European Union and not the monetary union.

Nauro Campos, Fabrizio Coricelli and Luigi Moretti look at this question for EU members. What if the current EU members chose not to join the union?

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Using science (sorry politics) to kill the mosquito menace..

April 10, 2014

Philosophy declining in universities but Philosophers top thinkers ranking…a paradox

April 10, 2014

Peter Singer Professor of Bioethics at Princeton University has this interesting article in Proj Synd.

He says that the intake in humanities has slipped sharply in recent years:

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What is the purpose of philosophy?

April 9, 2014

Big Think links to this video of Slavoj Žižek. Žižek has been called “the most dangerous philosopher in the West” for his analysis of the worldwide ecological crisis, the biogenetic revolution, and apocalyptic economic imbalances. I have never read or heard of Zizek and have hardly read philosophy so have absolutely nothing to say. But he seems to be quite a thinker. Blame it on the obsession to just look at economics.

In the video, he says the purpose of philosophy is to ask the right questions. Read the comments as well. 

Knowledge of philosophy is deeply important. The subject is hardly taught. Even from an economics perspective. Recently Mankiw argued that econ thinking and policy advice basically comes from philosophy.

Do you want to know a dirty little secret of economists who give policy advice? When we do so, we are often speaking not just as economic scientists, but also as political philosophers. Our recommendations are based not only on our understanding of how the world works, but also on our judgments about what makes a good society.

The necessity of political philosophy arises because most policies are good for some people and bad for others. For example, an increase in the minimum wage, as proposed by President Obama, may raise incomes for some low-wage workers, but it will cause some businesses to make smaller profits, some customers to pay more and some workers to lose their jobs.

Similarly, the Affordable Care Act has provided greater opportunity for some people to get health insurance, but it also caused cancellations for others who were previously happy with their insurance. Evaluating the overall effect of these policies requires balancing competing interests.

The founders of economics were all philosophers and thought deeply about the subject. This has all been reduced to just equations and math. People doing PhD hardly study philosophy which is such a loss. The doctorate is in philosophy and subject matter comes later.

Anyways, what can one do? Just try and figure using alternative resources such as this video..

Monetary policy post crisis…More art than science?

April 9, 2014

IMF econs released this interesting staff note ahead of its WEO release and G-20 meetings. In its blog IMF econs summed the paper as saying monetary policy as an art is alive and kicking.

The paper looks at this whole debate on monetary policy post crisis. There are hosts of agendas and this paper is a nice review. The paper seeks and provides answers to following questions:

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Should we allow religion in economics?

April 9, 2014

Prof. Robert Nelson of Univ of Maryland has advocated bringing religion into econ policy analysis.

In a recent piece at Cato’ Institute’s Regulation magazine, he argues for the case.

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Draghi’s stint as ECB chief …from saviour to crisis maker…

April 7, 2014

Mean reversion is not just a statistical process.  It follows the people who talk about it the most – economists and economic policymakers. All whose fates have risen beyond comprehension have seen their graph decline beyond comprehension. Right from Chicago School to Greenspan all have faced the music.

The latest to the club is Mario Draghi. He came in and said the golden words “whatever it takes” to save Euro in 2012. It worked like magic and soon the media was all gaga over Draghi. How he managed to arrive at a consensus to push OMT (which is being opposed now in German court in 2014) and all that made headlines Europe was never really used to. Stock of Draghi rose just like the Euro.

And now in 2014, things seem to be falling apart. The mean reversion seems to eb catching up. His recent reluctance to do anything to prevent deflation in EZ is being criticised.

Desmond Lachman of AEI says Prof Draghi has forgotten three macro lessons:

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Does following neo-liberal economic policy lead to rise of political fascism?

April 7, 2014

Prof. Prabhat Pattnaik of JNU has this hard hitting article/paper on the topic. I  typical JNU style he criticises this promotion of neo-liberal economics as the only agenda of the political parties in India.

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Break up of CPI into CPI and CPI (M)..historical perspective

April 4, 2014

Year of elections and promises. Also time of mergers and divorces of political parties. How about looking at a bit of history of pone such divorce?

EPW has this commentary picked from its archives of Apr-1964, the year when CPI broke into CPI and CPI (M)..

Arthur Koestler was wrong: the ultimate battle will not be between the communists and the ex-communists. From the way things are going it now seems that in that final of all confrontations, the backdrop will be severely intra-mural — it will in fact be the communists who will be fighting the other communists; and there could be no nastier battle.

From all angles it is a sorry spectacle. Developments over the last few days indicate that the split in the Communist Party of India is almost inevitable. Holding press conferences to run down one’s comrades, accusations and counter-accusations, prompt repudiation of pronouncements made by some leaders by other ones, add up to a sickening array of distasteful events. Clearly, whether or not the formal split comes at next week’s meeting of the National Council, CPI has already ceased to function as an organised political entry. And yet this is the party which till the other day was known for its iron cohesion and rigorous internal discipline.

There is no question that the break-up of the CPI would grievously affect the growth of the Indian polity, and is to be regretted on that score alone. 

Has  the narrative changed? Not at all..One could easily replace CPI with AAP:

The PSP has all but withered away, while Dr Lohia’s Socialists are too often given to aberration to be seriously considered as a category of the Left. With the Swatantra Party and the Jan Sangh crying hoopla on the Right, the balance of political forces in the country all of a sudden seems dangerously tilted in one direction. Given the reality that even within the Congress the conservative elements far outweigh those with overt socialist convictions, one can hardly dispute the need for a strong and stable party of the Left. A political democracy, after all, can survive and progress via the dialectics of balancing tensions. If the CPI cannot be cured of its schadenfreude no recognizable force will remain on the Left to challenge the propositions of the Right. Such an imbalance, for all one knows, might lead to a chain of unwholesome consequences. Neither the Jan Sangh nor the Swatantra Party can be fitted into a theme of progress: the Sangh’s political doctrines are quasi-fascist, while the Swatantra Party’s economic pronouncements are altogether innocent of the twentieth century context. The country’s economic future as well as political integrity would be seriously compromised if the only challenges the Congress is exposed to were represented by these two parties.

Those who do not recall the history…why the split?

 one faction being desperately anxious to follow the leadership of the Communist Party of the Soviet Union in analysing issues of international relations and in assessing the internal role of the Congress Government, while the opposing faction is equally determined to reject these ‘lines’ and to adopt, on these questions, points of view very similar to those propounded by the Communist Parties of China and Indonesia. It would seem that both the factions are fearful of losing international connections, and in a way the current worsening of intra-Party relations reflects the fact that, externally, in their squabble the Soviet and Chinese Parties are fast reaching the point of no return. One need not, and, on the basis of past record, should not, question the patriotism of Indian communists; but one can certainly castigate them for their inferiority complex, and can also deride them for the poor quality of their native wisdom.

By scuttling the party Communists of both hues are losing a lot. They will be splintering their organization; the goodwill they have accumulated over the years among the peasants and the workers, as also among the intellectuals and the middle class would be lost; and general frustration with the Left which the split would generate would do neither the warring factions nor the nation as a whole any good. It can also be hardly doubted that, for the next few years, a major part of their organizational skill and energy would be spent on efforts to whittle each other down, and only the residual would be available to propagate the ideology and the programme.

Nice stuff..


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