Archive for September 28th, 2007

Balance of Payments Update: Q1 2007-08

September 28, 2007

RBI has released India’s Balance of Payments for Q1 (Apr-Jun) 2007-08.

This is quite an important data release as it gives analysts and academicians data on various capital flows to ponder upon. Some points:

  • The exports increased by 17.8% in Q1 of 2007-08 lower than 23.7% noted in Q1 of 2006-07. 
  • The imports grew by 21.3% in Q1 of 2007-08 lower than 22.9% in Q1 of 2006-07.
  • Within imports, oil imports recorded a moderate growth of 8.0 per cent in Q1 of 2007-08 (45.2 per cent in Q1 of 2006-07) where as non-oil imports recorded a strong growth of 47.4 per cent (8.9 per cent in Q1 of 2006-07).
  • As exports declined by a higher % the trade deficit was noted at USD 21.6 billion in Q1 of 2007-08 higher than USD 16.9 billion in Q1 of 2006-07.
  • However, invisible receipts grew at 27.5% in Q1 2007-08 higher than 23.7% seen in Q1 2006-07; thereby reducing the current deficit.
  • The current account deficit was noted at USD 4.7 billion nearly similar to USD 4.6 billion noted in Q1 2006-07.
    The capital account remained buoyant on account of substantial portfolio flows; it was noted at USD 15.9 for Q1 2007-08 billion much higher than USD 10.9 billion noted in Q1 2006-07.
  • The overall balance of payments was at USD 11.2 billion.
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Impact of Globalisation on economy

September 28, 2007

I have  written quite a bit on this topic, first in the form of impact of globalisation on inflation (here and here) and impact of financial globalisation (here and here).

Fed Governor Mishkin revisits the topic in his recent speech. He provides a neat summary of the impact of globalisation on all important variables- inflation, output, monetary transmission etc. There is a very rich reference list to look forward to.

a) Impact on inflation: Not really. The story is similar to what I wrote earlier. Despite many research papers on the subject, none show that globalisation has led to low inflation. There has been some impact but it is very small and not worth mentioning.

b) Impact on output: The evidence is mixed. One set of research shows

globalization may stabilize output by enabling producers to service a diversified global market rather than just the domestic market.

Other set of research shows:

Greater trade integration–including greater trade in services (Markusen, 2007)–could raise output volatility as countries become more vulnerable to foreign shocks.

Even with financial globalisation we have mixed response and we do not really know whether financial globalisation has led to lower risk or higher risk on the economy.

Mishkin however believes globalisation to be beneficial to output as both real and financial shocks are diversified. But the evidence so far is mixed.

Inflation has  come down over the years for most of the countries. Then what explains this development? Mishkin says what others have been saying- better monetary policy:

Tighter monetary policy and a commitment to price stability by central banks throughout the world have led to lower inflation and an anchoring of inflation expectations.  These policies have had huge benefits–not only the achievement of low and stable inflation but also an improvement in the overall performance of the economy.

Globalization, however, may have helped reduce inflation in more-subtle ways.  By fostering increased interactions among central banks, academics, and the public in many different countries, globalization has helped spread a common culture that stresses the benefits of achieving price stability.  The resulting increased focus on price stability has been a key reason for the reduction of inflation worldwide.

A nice summary of research available on the subject.

Assorted Links

September 28, 2007

1. MR on  Russia

2. WSJ saysit is not Bernanke put but Bernanke Collar.

3. Financial Rounds points to a new website on game theory.

4. Mankiw points to an interesting article on monetary policy institutions.

5. TCA points a new paper.


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