Archive for April 16th, 2010

Case studies on Germany and France public finances

April 16, 2010

ECB conducted a workshop on the topic- Public Finance Workshop Challenges for fiscal sustainability in the EU. I came across an interesting paper by Peter Wierts of Netherlands central bank. 

In the paper he looks at how these two countries have fared in public finances pre EMU and post EMU. And then whether these two countries follow a rule or are discretionary towards their fiscal policies? 

In nutshell, Germany  follows rules but France is more discretionary . Germany has had a painful history of spiralling deficits and hyperinflation and therefore is more cautious. 

We study the signals that fiscal policies and institutional reforms give about underlying preferences for policy conduct in Germany and France. Results for a wide range of indicators mostly – but not always – confirm a first intuition that preferences are tilted towards rules in Germany, and towards discretion in France. At the same time, our case study also suggests that preferences are not fixed, and that fiscal policies and institutions may change as a result. In recent years, ongoing unsustainable debt developments seem to have inspired the introduction of stricter national fiscal rules both in Germany and France. It remains to be seen how constraining recent innovations in national fiscal rules will turn out to be in the course of the fiscal exit. 

More details: 

In this paper, we have investigated the signals that national fiscal policies and institutions give about underlying preferences for the conduct of fiscal policy. If anything, ex post fiscal data seem to signal a stronger preference for constraining expenditure growth in Germany than in France, and stronger preferences for discretionary countercyclical policy in France. Real time data suggest that national fiscal plans have been more constraining in Germany than in France. Positions taken regarding the EU fiscal rules indicate preferences for a rules-based approach in Germany (except during the revision of results for most of the indicators confirm a first intuition that preferences are tilted more towards a rules-based approach in Germany, and towards discretion in France.  

Our results however also suggest that preferences are not fixed, and that fiscal policies and institutions may change as a result. In Germany, ongoing unsustainable debt trends led to preferences for and agreement on a stronger national constitutional rule. But also in France, actual fiscal developments seem to have inspired reforms in the national institutional setting, making the system somewhat more rules based. Are a result, we could argue that there is merit in the argument that disciplined countries introduce stricter rules, but that it is not the whole story. In addition, unsustainable fiscal developments may lead to an evolution of preferences towards addressing the unsustainable trend, and stronger rules in response. 

At the same time, it remains to be seen how constraining recent innovations in fiscal rules will turn out to be in the course of the fiscal exit. In recent months, it has sometimes been argued that differences in approach in Germany and France regarding the fiscal exit could jeopardise the credibility of both the fiscal exit and the SGP. We are more inclined to give a positive interpretation, however. Thanks to their differences in approach,Germany and France have played complementary roles at EU level, and acted in different ways: Germany by taking the lead in introducing the EU fiscal rules, and France by taking the lead in organising a discretionary response to the economic crisis. Moreover, in cases where German proposals tilted too much towards rules, or French proposals too much towards discretion, there was always the need to compromise with each other and strike a balance. We like to think that, in a world of uncertainty, differences in approach, learning from each other, as well as learning from experience can over time only lead to better policies.  

Useful insights into the two major economies of EMU.

Research papers on Indian housing sector

April 16, 2010

I came across very useful set of occasional papers on Indian housing sector by National Housing Bank.

I have read executive summaries of the papers and found them to be quite good. They give you good insights into Indian housing sector. The second paper on transaction cost in particular is very interesting as it explains transaction costs of house buying in various cities across India.

NHB has done its website quite a bit. There is an updated time series of its housing index – NHB Residex. It includes data till Jan-Jun 2009. Previous analysis (till 2007) can be found here.  

  • In Bangalore, Kochi, Hyderabad and Jaipur prices have declined from 2007 levels.
  • In rest of the cities prices have increased.
  • The crisis started from Sep 2008 onwards. So let us compare what happened in the period July-Sec 2008 and Jan-Jun 2009. In Jaipur, Hyderabad, Bengaluru, Bhopal, Delhi and Kochi have registered a decline in the period. The cities of Lucknow, Mumbai, Pune, Patna, Faridabad, Surat, Kolkata, Chennai and Ahmedabad- see no impact of the crisis
  • In particular the rise in prices of Kolkata is quite spectacular. Mumbai shows steady growth throughout the period 2007- Jan-Jun 2009

Also check various areas in these cities.

Central Banker speak on biodiversity and ecosystems

April 16, 2010

RBI Deputy Governor Usha Thorat gives a speech on a very unusual topic for a central banker- The Economics of Ecosystems and Biodiversity. However, the speech is quite good and refreshing as well.

For a layperson, such as me, having accepted Pavan’s invitation, it meant starting from scratch. I needed to understand the jargon. What do the terms biodiversity and ecosystem services mean? Why is it important for us to think and talk about these issues? What is the value of biodiversity and ecosystem services? Why should we attribute monetary value to biodiversity and ecosystem services? More importantly, how do we attribute monetary value to these services? Finally, how do we integrate the process of attributing monetary value to these concepts into decision-making on investment projects and use of natural resources – whether in the public or private sectors? What should be the policy framework, and consequently the regulatory framework, to implement these policies?

What do these terms mean?

So, what are biodiversity and ecosystem services and why and how do we measure their value? Wikipedia defines biodiversity as the variation of life forms within a given ecosystem, biome or on the entire Earth. Biodiversity is often used as a measure of the health of biological systems. The biodiversity found on Earth today consists of many millions of distinct biological species. Many biologists now believe that ecosystems rich in diversity gain greater resilience and are, therefore, able to recover more readily from stresses such as drought or human-induced habitat degradation.  

Humankind benefits from a multitude of resources and processes that are supplied by natural ecosystems. Collectively, these benefits are known as ecosystem services. Some of these ecosystem services are air quality, climate (both global CO2 sequestration and local), water purification, pollination, and prevention of soil erosion. While scientists and environmentalists have discussed ecosystem services for decades, these services were popularized and their definitions formalized by the United Nations 2004 Millennium Ecosystem Assessment (MA), a four-year study involving more than 1,300 scientists worldwide. The study grouped ecosystem services into four broad categories: provisioning, such as the production of food and water; regulating, such as the control of climate and disease; supporting, such as nutrient cycles and crop pollination; and cultural, such as spiritual and recreational benefits.

Hmm. Read the whole thing for more ideas on the topic. I have absolutely no idea about this topic so no comments….

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