Archive for May, 2011

Swiss approach to tacking too big to fail (TBTF) problem

May 23, 2011

Thomas Jordan of Swiss National Bank gives this nice speech on the topic. The detailed report is here.

He says the idea is not to stifle financial firms. But to protect taxpayers money:

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UPA-II report to people 2010-11

May 23, 2011

There is lots in the media on this topic today. Mostly people are disappointed (And rightly so) with the current government.

Here are the links of the report:

I just had a few things to discuss.
 
First from Highlights of the Report. It first says:

SEBI’s objective and functions – a legal perspective

May 23, 2011

Dharmishta Raval (ormerly an Executive Director at SEBI) has this superb paper on the topic. Securities Exchange Board of India or SEBI is a capital market regulator of India. One would usually assume papers on SEBI would be in area of finance etc. However, there some strong legal linkages as well and one is amazed how much it is a legal body as well and has been designed accordingly. Raval was  instrumental in drafting the SEBI Act and is an authority on the subject.

She says India set up few regulators post 1991 reforms to regulate and develop markets independent of the government.

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Comparing Donald Trump to Silvio Berlusconi

May 20, 2011

Luigi Zingales  of Chicago Booth School writes this nice article on the same.

He says it is a boon for US that Donald Trump’s announcement that he will not run in the Republican presidential primaries.

The only thing more frightening than Trump’s running for president would be Trump’s getting elected president. From a party perspective, while losing an election is bad, winning one with the wrong candidate for the party and for the country is worse. I know something about this: I come from Italy, a country that has elected as prime minister the Trumplike Silvio Berlusconi.

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Limitations of income inequality statistics and India’s BPL census

May 20, 2011

Thomas Garrett of St Louis Fed serves a nice reminder on limitations of calculating inequality.

Income quintiles from different years are often compared to demonstrate the growing income inequality over time between, say, the poorest 20 percent of households and the wealthiest 5 percent of households. For example, in 1970 the income of the wealthiest 5 percent of households was 6.3 times greater than the income of the poorest 20 percent of households, whereas in 2007 the income of the wealthiest 5 percent of households was 8.8 times greater than the income of the poorest 20 percent of households. When such comparisons are made, it is implicitly assumed that each quintile contains the same households over time. 

For most people, income increases over time as they move from a usually low-paying first job to better-paying jobs later in life. Some others, however, may lose income over time due to business cycle contractions, demotions, career changes, retirement, and so on. Because incomes are not constant over time, the same households do not necessarily remain in the same income quintiles. Thus, comparing income quintiles from different years is a proverbial apples-to-oranges comparison because the households compared are at different stages in their earnings profile.

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Using power blackouts to help understand the determinants of infant health

May 20, 2011

Jed Friedman writes an intriguing post on WB evaluation blog. He points to a study which looks at the impact of power blackout on infants health born 7-9 months later.

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RBI must opt for soft inflation targeting

May 20, 2011

Says C. Rangarajan in this interview.

Do you recommend inflation targeting as a mandate for RBI?

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Nudging to choose elevator arrows correctly

May 20, 2011

Outside the elevator one mostly gets these two signs for going up or down.

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India’s forbidden cities

May 20, 2011

Francesco Giavazzi of Bocconi Univ Italy writes this nice article deploring the state of cities in India.

He begins the article  recalling his class in economics where an Indian student decides not to come to India despite a job offer. He choses to shift to London instead. He wants to come back but thanks to poor work-life balance has decided to remain away:

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An economist seems to have predicetd the 2008 crisis way back in 1997

May 19, 2011

Mason Gaffney writes this nice paper on the topic. As the queen asked why did economists miss the crisis, we have seen it is not that econs could not see the crisis. It is just that some who saw it were ignored by the dominant minds then.

In this paper, Gaffney brings to light a paper by Fred Foldvary who seemed to have predicted the crisis way back  in 1997. He concludes in the paper:

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Which economists/blogs/thinkers do economists prefer?

May 19, 2011

William Davis, Bob Figgins, David Hedengren and Daniel Klein of compile this nice poll of economists by economists.

A sample of 299 U.S. economics professors, presumably random, responded to our survey which asked favorites in the following areas: Economic thinkers (pre-twentieth century, twentieth century now deceased, living age 60 or older, living under age 60), economics journals, and economics blogs.

The sample questionnaire is sent to 1969 economists across 300 econ departments but response is from just 299 econs. This could bias the findings. But one should not expect much changes as answers are mostly in line with what one would expect.

Importantly, the authors also rank the voting preference of economists and calculate their libertarian approach to understand the voting pattern. So say which kind of econs prefer Adam Smith – Democrats or Republicans? Libertarians or paternalistic? This has become very important because of the crisis where economists are accused of supporting political parties’ views.

Results are:

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Books that should be read before starting a Ph.D. in economics

May 19, 2011

Ajay Shah points to some books one should read before starting a PHD in economics:

 I thought it’s useful to pick a set of books that touch on the great themes of the world, often going into troublesome terrain that the models aren’t very good at, so as to lay a foundation of background knowledge and historical knowledge which can pave the way to usefully assimilating what’s taught in the economics Ph.D. Of course, they should be books that are fun to read and un-putdownable.

Here’s my suggested compact checklist of books worth reading. Please do suggest books, and disagree with this list, in the comments to this post.

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Exploring Policy Trade-offs in Domestic and Global Economies

May 18, 2011

This is the title of my new paper. I have tried to look at how domestic policies could impact the global outcomes and vice-versa.  

The policymakers have been saying lately that rising inflation is not a domestic issue, but has become a global phenomenon. Hence, to tackle it we need global solutions as domestic solutions will not be enough. This issue is not limited to inflation alone but extends to other policy areas as well – fiscal, financial regulation, international monetary system and so on.

In this paper, we will discuss how the global environment has affected the local economies. It reviews how local policies should be responding to the problems whose sources are becoming global and whether global cooperation/coordination is needed. The paper will start discussing the issues of global coordination in economic policy in general and then look at a few fields of economics separately where these issues have come to light.

Comments/feedback are welcome.

Did US Banks learn any lessons from the 1998 crisis?

May 18, 2011

Bank officers are now saying we have learned some grave lessons from the 2007 crisis. We will try to never repeat the mistakes again etc. Should we believe them? Naah….Not one bit (some have forgotten lessons immediately)

In this amazing paper Rüdiger Fahlenbrach, Robert Prilmeier and Rene Stulz say nothing has changed. This time is the same as well.

They track banks performance in 1998 crisis (Russian debt crisis) when banks said the same things. They find banks which performed badly in 1998 have performed badly even now! The same story of banks having larger short-term finance and high leverage were the crisis banks then and are crisis banks now:

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How UK Govt. is trying to improve policies using internet

May 18, 2011

A nice speech by George Osborne Chancellor of the Exchequer of UK. He points how UK was late to adopt internet as a tool for information dissemination and delivery of services. Now it is very serious and making changes to make internet a vital tool for public policy.

For politicians of my generation, the incredible disruptive impact of the internet is not a threat – it’s an opportunity. An opportunity to build societies that are more open, more innovative and more prosperous. As we all know, virtually every walk of life is being affected in some way by the internet and new technology.

That’s why, over the course of this conference, you are going to be hearing from experts talking about how the internet is changing the economy, affecting our culture and transforming society.  In my view, the impact that the internet is having on government is equally profound. That’s what I’d like to focus on today.

I’d like to look at three of the most dramatic ways that the internet age is changing government. The way it is:

  • Changing accountability.
  • Changing policy making.
  • And changing public services.

The speech is full on anecdotes and cases. In how internet could improve accountability he recalls a visit to India:

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Interview of NR Narayana Murthy

May 16, 2011

A nice interview of icon NR Narayana Murthy, who will retire from Infosys from Aug 20, 2010. It is amazing really how he and 6 others have not passed the doyen to any of their children.

When asked what he thinks is Infosys biggest achievment?  He says

Murthy: I think the biggest achievement of Infosys is the fact that hundreds and thousands of youngsters in the country who want to become entrepreneurs have got the hope and confidence that comes from what we have done. They feel that if these seven people could do this, so can they. I think that is the finest contribution of Infosys. Frankly, I don’t know if there is any other company that can claim this, and to me that is contribution enough.

Economics of Walls??

May 16, 2011

As I got an email with the same title, I was wondering what does it mean. I initially thought it would be economic thoughts by some historical economist which I know nothing about. But actually it turned out to Economics of Walls as in the physical walls.

DIW Berlin and the Economics of Security Initiative are organising a conference on Economics of Walls on 9 Nov, 2o11 to celebrate the 22 nd anniversary of the fall of the Berlin Wall.

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Economic analysis in a central bank: models versus judgement

May 16, 2011

This is the title of this very useful handbook by Lionel Price of Bank of England. The handbook was written in 1996 but is still a very decent read as a primer on economics models and how central banks use them. Though, it does not include an explanation for DSGE models.

One cannot copy the pdf content so cannot discuss much. Explains in English – structural models, atheoretic models and VAR models (a part of atheoretic models).

In the end Price says though models are useful one should always be sceptical of them. Sound economic theory is crucial to good models along with judgement and experience of the modeller.

Addendum:

One should check the other handbooks as well. Very very useful.

Do women political leaders help women?

May 13, 2011

This is a timely paper given today’s election results. We have seen two women emerge as leaders in the state elections results – Mamta Banerjee in West Bengal and Jayalalitha in Tamil Nadu. Both have clean sweeped. It is not new for Jayalalitha as she has been the CM before but completely a change for West Bengal which has lived in communist rule for 34 years.

So what would one expect from a women leader? One of the first thing would be improvement in women security. As a woman it is a shame to live freely in this country. You have fear lurking in most corners of the country. As a woman you would ideally want to improve things somewhat for woman. Reduce crime rates against women, punish the culprits severely, make the police more sensitive and severe in case of women related crimes etc.

This paper by Lakshmi Iyer, Anandi Mani (University of Warwick), and Prachi Mishra and Petia Topalova (IMF) looks at these issues at a village level which has a female council head. Here is a nice discussion of the paper.

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Headline vs core inflation links

May 13, 2011

The debate continues…

William R. Cline and Joseph E. Gagnon discuss (transcript here) which is a better measure for inflation. Gagnon of NY Fed prefers the core and Cline says looking at core ignores the trend of persistent rise of food and fuel prices. Cline says:

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