Archive for December, 2010

What is inclusive growth?

December 23, 2010

K. C. Chakrabarty, Deputy Governor of  RBI in this speech clarifies the meaning of inclusive growth.

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Impact of corruption on American Recovery and Reinvestment Act

December 23, 2010

One generally gets to read such papers for emerging/developing economies. It is interesting to read them in developed country context.

Anders Sundell of University of Gothenburg in this paper says US states which are more corrupt ended up being more efficient in stimulus spending and creating more jobs:

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Friedman on Euro

December 22, 2010

I came across this Milton Friedman speech where he talks about howe Canada has gained from flexible exchange rates.

At the end Michael Bordo asks him a q on Euro:

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The Inequality that matters

December 22, 2010

This is the title of an article/paper by Tyler Cowen. He throws light on the matter in typical Cowen style. He says much of the inequality fears are bogus but some issues deserve more attention that they are getting (Wall Street risky behavior).

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How has India managed the impossible trinity over the years?

December 22, 2010

Michael Hutchison, Rajeswari Sengupta and Nirvikar Singh have written this amazing paper (see the ppt for a quicker understanding).

They develop an impossible trinity index for India and see how it has moved/changed over the years. Impossible Trinity means one cannot manage exchange rates, price stability and capital account openness together. One has to give up one of the objectives and there is a trade-off. Read this superb paper from Joshua Aizenamann to understand the trade-offs. Also my two attempts to explain the idea from an Asian and Indian perspective.

Coming back to the paper. So what the authors do is track these trilemma variables over a period of time. In sum, the authors measure tradeoff between financial integration, exchange rate stability and monetary independence in India.

The hypothesis is as India has opened up over the years, one should see either loss of monetary independence or loss of exchange rate stability. And this indeed is the case.

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Primary Dealer System in Ghana??

December 21, 2010

Having served for primary dealer organisations in India, it is always interesting to know about PD systems in other countries as well. PDs serve a very important function in managing the government borrowing program around the world.

I was surprised to know Ghana has a PD system as well. Kwesi Bekoe Amissah-Arthur, Governor of the Bank of Ghana via this speech explains the current PD system and proposed reforms.

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How different financial systems evolve?

December 21, 2010

Richard Reid writes this nice paper on the topic.

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A-resilient vs B-resilient cities

December 21, 2010

After reading this article from Mario Polèse, I checked other papers by the urban economist. I was impressed right away.

This paper looks at the issue of resilient cities. He looks at cities which recover from external shocks. He categorises such cities as two types –

  • A- resilience: ability to survive shocks
  • B- resilience: ability to change and grow after shocks

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European Systemic Risk Board established but confusion remains

December 20, 2010

European Systemic Risk Board (ESRB) has been established on 16-Dec-10:

The legislation establishing the European Systemic Risk Board (ESRB) came into force today. The seat of the ESRB is in Frankfurt am Main and its Secretariat is ensured by the European Central Bank (ECB).

The ESRB is an independent EU body responsible for the macro-prudential oversight of the financial system within the Union. It shall contribute to the prevention or mitigation of systemic risks to financial stability in the Union that arise from developments within the financial system. The ESRB shall also contribute to the smooth functioning of the internal market and thereby ensure a sustainable contribution of the financial sector to economic growth.

As foreseen in the legislation, the Chair of the ESRB is the President of the European Central Bank, Mr Jean-Claude Trichet. Mr Mervyn King, Governor of the Bank of England, was elected today as first Vice-Chair of the ESRB by the members of the General Council of the ECB.

Interestingly, ESRB looks at whole EU which is 27 members where as ECB looks at EMU which is 16 members (to become 17 as Estonia joins on 1 Jan 2011). Again, there is likely to be confusion as non-EMU members have set up/about to set up their own macroprudential bodies.  

Take the case of UK. BoE has been given macroprudential powers and a seperate commitee will be looking at all these things. A specific role has been accorded for financial stability in the BoE board with Paul Tucker as Deputy Governor, Financial Stability.

And now we have Mervyn King,  Governor of BOE as vice chair of ESRB. Again, there will be a need to clarify all these roles carefully. Otherwise again there will be skipping of responsibilities and blame games will be played. Will King tell Tucker on spotting a financial risk in UK? And then how will Tucker repond? Likewise, we are likely to have similar situations in non-EMU members like Sweden, Denmark, Poland etc.  

Coordinating/Merging all these European policies at one level is never an easy task. And as the crisis lessons show, need to do all this with vigilance.

The role of i-phone in US-China current account balances

December 20, 2010

Yuqing Xing and Neal Detert write this paper on the topic. The paper is a fascinating read as it links so many ideas/theories. WSJ also has a write-up on the same

Apple Inc, a US based company sells i-phones all around the world. So one would expect that i-phone should be leading to current account surplus (exports – imports>0). However, the authors show that it actually is worsening the US current account deficit. With China alone i-phone contributes about USD 1.8 bn of current account deficit of US:

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ECB raises its capital..

December 20, 2010

After much talks and hype, ECB raised its capital from EUR 5.76 bn to EUR 10.76 bn.

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Indian Economy – Fortnightly Update

December 16, 2010

Here is the latest fortnightly edition on Indian economy. It covers following data released between 1 Dec 2010 and 14 Dec 2010:

  • IIP for Oct-10
  • WPI Inflation for Nov-10
  • Exports for Oct-10

Comments/feedback on improving the product welcome.

RBI’s December-2010 monetary policy review

December 16, 2010

RBI released its mid-quarter review for Dec-10.

Usually the trade-off RBI (and other central banks) face is inflation vs growth. This time around it was also between liquidity and inflation. Growth has kind of become a given with strong numbers posted by most data series. As liquidity has remained in  persistent deficit situation, RBI faced another tricky situation. This has been a major concern for many months now. RBI is comfortable with deficit liquidity around 1% of NDTL – which is about 53,000 Cr. This helps the tight monetary policy stance and helps the transmission process. But deficit liquidity has been over Rs 1,00,000 crore.

Here is how the trade-off looks. The measures to address liquidity are inflationary and vice-versa. There were number of permutations floating before the review statement was released (with most expecting a status quo on all rates):

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ECB’s environment economics policy

December 16, 2010

European Central Bank released a superb report giving an assessment of the central bank’s environment policy.

The report shows how ECB has been conscious of the environment and making changes in its usage of energy, paper, carbon dioxide etc. It even tracks and measures how much each of these resources have been used in a year! It is also raising awareness in its staff on the several issues in the environment.

It details about ECB’s buildings, number of people in ECB, the  facilities in place which use environment electricity usage, air conditioner usage etc.

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Why megacities continue to exist in this knowledge and internet age?

December 15, 2010

Professor Mario Polèse writes a superb article explaining the question (HT: Charter cities blog).

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Decadal Infrastructure Goals vs Millennium Development Goals

December 15, 2010

Gulzar Natarajan points to this new idea proposed by Harvard Professor Stephen Peterson. H says foreign aid focus should be on developing infrastructure not fluffy social development indicators:

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Economic Growth and Development: Latvia vs Croatia

December 15, 2010

These kinds of studies are very interesting where two countries take up a common strategy at a similar point of time. The common strategy could be opening up economies, political independence etc. And then after some 50 years or so one compares how the two have fared. So you have studies comparing India with S. Korea with both getting independence at near similar times (Korea also celebrates its independence day on August 15). Then you compare South Korea and North Korea. One also looks at Barbados vs Jamaica and Barbados vs Guyana.

Thorvaldur Gylfason and Eduard Hochreiter look at Croatia vs Latvia case study in this paper. They discuss the findings in voxeu:

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ECB’s two excellent games to understand monetary policy and inflation

December 15, 2010

This is a wow. ECB recently launched two educational games which help in understanding monetary policy and inflation.

First game is called €CONOMIA which is a monetary policy game:

Have you ever wondered what exactly monetary policy is? Or how the key interest rate affects inflation? €CONOMIA will help you understand these basics of central banking. Your goal is to keep inflation low, at just under 2%, and stable. The interest rate decisions you take can achieve that – but they can also cause inflation to slow down or to rise sharply. Achieving a balance between the two extremes is not easy.

Second is Inflation Island where we understand the various situations of inflation – normal, hyper and deflation.

Explore the different areas of Inflation Island, see how people react to inflation and deflation, and how the scenery changes. You can also test your knowledge and try to identify the different inflation scenarios.

The Island’s cinema features videos and photos showing how inflation and deflation have affected various countries over the years.

In the second game you have video clippings of hyperinflation in Germany, Hungary and Zimbabwe. It also has a super video on deflation in Japan.

I played both the games for a little while and found them to be excellent. Very good graphics and exciting way to explain the key issues in central banking.

Highly recommended.

Update:

Trichet inaugrates these games and gives a short speech

ECB’s capital raising issue

December 15, 2010

ECB proposes to ask Euroarea members to raise its capital base.

ECB’s subscribed capital by members is EUR 5.8 billion, compared with a balance sheet of almost €138 billion (heavy file) in Dec 2009 (latest we have). And then it has bought EMU sovereign bonds worth EUR 72 billion. So it is weary of making losses on these bonds and also wants more firepower to fight any future concerns. A higher capital will provide markets some confidence as well:

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Low cost home solutions from Jerry Rao

December 14, 2010

Business Standard ran a super profile of Jerry Rao. After moving from Mphasis he ahs set up this firm called Value and Budget Housing Corporation Ltd.

His Business model is to sell homes in the range of Rs 5 lakh to Rs 11 lakh. How does he plan to do it? There are three broad strategies:

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