Archive for July 13th, 2007

Replication in Economics

July 13, 2007

I came across this paper by Daniel Hamermesh (Univ of Texas, Austin) which looks quite interesting at the onset. It should be a good light reading over the weekend. It is not about the usual eco stuff but raises concerns on why there isn’t replication in economics. The abstract is:

This examination of the role and potential for replication in economics points out the paucity of both pure replication — checking on others’ published papers using their data — and scientific replication — using data representing different populations in one’s own work or in a Comment. Several controversies in empirical economics illustrate how and how not to behave when replicating others’ work. The incentives for replication facing editors, authors and potential replicators are examined. Recognising these incentives, I advance proposals aimed at journal editors that will increase the supply of replication studies, and I propose a way of generating more scientific replication that will make empirical economic research more credible.

He begins rather well

Economists treat replication the way teenagers treat chastity—as an ideal to be professed but not to be practiced. Why is this?

Read on. I would post my comments after reading it.

Competitive currency

July 13, 2007

This was the theme of the lecture Martin Feldstein had given at the Economic Summit of the Stanford Institute for Economic Policy Research, March 3, 2006. The lecture is here.

The lecture basically talks about US trade deficit and role of dollar in reducing the deficit. Feldstein says that earlier the message was that strong dollar is good for USA (means overvalued) but now is the time for a change.

I think it is time to change the message. The message should be that we need a competitive dollar abroad and a strong dollar at home. It is important to distinguish between the strength of the dollar at home and the value of the dollar relative to foreign currencies. A strong dollar at home is one that maintains its overall purchasing power in the domestic market. Stated differently, a strong dollar at home is one whose purchasing power is not eroded by domestic inflation.

Wow! I could never think that way. That is a lesson for all policymakers. The currency at home is different from currency abroad. You need effective monetary policy to maintain strong currency at home and a competitive currency for balancing the trade balances.

He has the same message he had given in his paper I covered here (The paper came in 2007) that dollar needs to depreciate to control trade deficit. He has presented some good numbers to show how both (strong and competitive currency) can be achieved.

But as we just learnt, dollar depreciation may not lower the trade deficit as most would think.

Applying it to India, low inflation is clearly well sought and so the belief for a strong rupee at home is widely held and shared (even amongst the political circles, thankfully as they loose elections on inflation). But what about competitive rupee? There is no clarity what so ever. 

IIP continues to grow

July 13, 2007
CSO released the IIP numbers for May 2007 yesterday. Here are the newspaper summaries- ET, BS, FE.
Some broad trends:
  • The numbers are lower than expected. The median estimates for May 07 was about 12% whereas the figure was 11.1%. 
  • The more surprising part was that figures for April 07 were revised downwards from 13.6% to 12.4%. Earlier what was happening was not only the IIP was more than expected but even revised number used to be generally upwards.
  • The manufacturing sector grew by 11.9% in May 07 lower than 13.3% seen in May 06; this is also the lowest growth rate witnessed in manufacturing sector since Oct 06 when the sector grew by 3.8%.  
  • Electricity sector clocked a growth of 9.4% almost double that of 5.0% seen in May 06.
  • If you look at the use based classification, capital goods and consumer non-durables goods sector was quite robust. The growth in the capital goods sector was recorded at 22.9 % in May 07 higher than 21.4% seen in May 06. The consumer non-durables sector grew by 12.5% in May 07 higher than 8.2% seen in May 06.
  • In Industry groups Woods and Wood products continues its run and grows by 132.8%. This sector has seen growth rates in excess of 90% since Jan 07!
Overall, the growth numbers are still pretty robust. I don’t know how can newspapers say that RBI mon pol measures seem to be kicking in.
Yes, slowdown has happened but it is like we didn’t grow at 12% but at 11% which is anything but a slowdown. If only we see a consistent trend from now on when actual is lower than expected can we say some kind of slowdown is happening.
Keep watching this space!

Assorted Links

July 13, 2007

1.  WSJ Blog pointsout to a debate between Mankiw and Blinder.

2. World Bank PSD Blog points out to this superb article– How Biofuels Could Starve the Poor.

3. AV Rajwade argues in BS that rupee appreciation is a cause for concern. I agree.

4. TCA in BS points out to two papers on India’s liking for informal systems.

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