Archive for August 17th, 2009

A Framework on Financial Market Development

August 17, 2009

I am reading this longish paper by IMF economists Ralph Chami, Connel Fullenkamp and Sunil Sharma. It is like reading a basic textbook on financial markets and takes you straight to the classroom:

The paper proposes a framework for examining the process of financial market development. The framework, consistent with the functional view of financial system design, is anchored in studying the incentives facing the key players in financial markets-borrowers, lenders, liquidity providers, and regulators-whose actions determine whether and how markets develop. While different financial instruments embody different concessions by borrowers and lenders, the framework emphasizes the two main compromises: the tradeoffs between maturity and collateral, and between seniority and control. The framework is used to analyze the sequencing of financial market development.

Whatever I have read is quite good. It could be made a part of the reading list on financial markets in B-schools/Finance courses

Tobin curse- the soft spot of this crisis

August 17, 2009

As I mentioned, more criticism of economics and economists is to follow, here is another one.

Charles Wyplosz of Univ of St Gallen in this lecture has given superb insights on field of macroeconomics and finance and its role in the crisis.

My talk will be about macroeconomics, because this is what I am supposed to know, but also about finance, because the two fields are deeply inter-twined, or should be. Early on in my career, I tried to master both macroeconomics and finance, because I was enormously influenced by Jim Tobin’s observation that the most important challenge for research was to bridge the growing gap between macroeconomics and finance. Tobin himself had made seminal contributions to both macroeconomics and finance theory, and even to econometrics. Quickly, however, macroeconomics and finance became so specialized that mastering both fields appeared to me as mission impossible, and I chose macroeconomics. But I deeply believe that the divorce of these two fields is probably the fundamental reason for the current crisis, this is what I call the Tobin curse.

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Mostly Harmless Economics

August 17, 2009

Chris Blattman points to a new book on econometrics titled – Mostly Harmless Econometrics. The title of the book just took me by surprise as it is teasingly similar to the name of this blog- Mostly Economics.

In his post Blattman also points to a review of the book by Andrew Gelman who says:

It can be debated whether Mostly Harmless Econometrics is indeed mostly harmless

This is a pretty interesting comment. Seeing this crisis, the comment applies to economics in general. What were preached as harmless economics ideas and theories have turned into quite (ouch) harmful ones. At least that is what is a feeling we get from reading comments from leading economists on this crisis (see this, this and this, more to follow….) 

It might not be a bad idea to dub economic ideas/theories into harmless, mostly harmless and mostly harmful from now on (though again the issue of classifying into these categories would be a tough call…it will keep changing with times)

All this is also tempting me  to change the title of this blog to Mostly Harmless Economics after all pointing a few papers and research ideas should not harm anyone…… but it would just be too long and changing the URL would be another problem…. 🙂


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