Today is a day on central bank semantics.
I was going through RBI’s Report of the Working Group on Operating Procedure of Monetary Policy released in 2011. This report forms the backdrop of the current framework of RBI. Earlier we just had LAF repo and reverse repo forming the corridor, This report made Repo the main policy rate with Rev repo and Marginal Standing Facility forming the corridor.
However, the report proposed MSF as Exceptional SF:
Despite some attempts to make central banking transparent, the central bankers largely fail to simplify things..
Today morning this news came regarding central bank swap lines:
Post-appointment of Janet Yellen as Fed chief, there have been a few articles questioning why there are few women in central banks?
An interesting piece by Alan Mallach of Brookings Institution.
He summarises 30 yrs of experience on casinos and cities:
These comparative approaches help a great deal. You get a sense of how do current crisis/events compare with orevious such events.
Benoît Coeuré of the European Central Bank points to similarities and differences between the three crises:
Sometimes a 100 pager paper fails to make sense and sometimes just a 4 pager does the job,
Gene Amromin and Ben Chabot of Chicago Fed write this must read note on Detroit bankruptcy. It not only explains the economics of bankruptcy of cities in US but the politics as well:
Latika Chaudhary of Scripps College and Jared Rubin pf Chapman University write this interesting paper.
They analyse whether leaders provide more public goods to people of their religion?
This is the title of this new RBI WP by Mr Tushar Das.
It looks at how NIMs of banks have changed over the years. It also analyses the impact of 2008 crisis on NIMs of banks. It shows NIMs of banks have declined over the years because of the 1992 reforms.
The global financial crisis that jeopardized the advanced economies is perceived to have had a limited impact on Indian banking system. However, the effect was so severe that the advanced economies are still struggling to achieve stability. In this paper, we attempted to analyze the impact of the financial crisis on the Net Interest Margin (NIM) of Indian banks. Variables considered for the analysis were of three different types: bank specific, those representing the banking industry, and a third category consisting of macro-economic variables. We used a wide range of bank-wise panel data for the period 1992 through 2010. In this paper, we examined the impact of the financial crisis on the variables, considered under the monetary transmission literature, such as size, capital and liquidity. When analyzed from the ownership angle, it has been observed that the public sector banks were affected significantly during the crisis. We find that, during the second half of the crisis, the margin of banks with low capital and poor liquidity was impaired significantly when compared with banks that had sufficient capital and liquidity support.
The much hyped tatement is out and has become even shorter. Not sure what it achieves as it leaves out many crucial things covered in previous reviews.
There is a possibility that Rajan wants to shape his statement as just a few paras as seen in case of other central banks. This could be the first step towards such a statement. So may be in future you just see rate action, one para on global economy, one on Indian economy and may be another one on a topical issue…
But then why mention things like five pillars, reforms in banking etc in this statement. You could have minimised this saying the measures on banking and finance will be announced as and when…
Following decisions have been taken:
Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore (MAS), does not mention the word nudge/behavioral finance in this speech but one can read it everywhere.
The speech is about how MAS is planning to improve the financial well-being of the Singaporeans. They are also seen as poster children of neo-classical policies which believes in the rational consumer. One would usually imagine that people from this rich country would be rational and better at financial planning. MAS findings does not really show this :
It is always useful to read this RBI’s quarterly macro report released just a day before the mon pol day. Though I wish the document is timed a little better. It could be released on the weekend before the policy. This will atleast make some people read the doc over the weekend. However, by releasing it a day before, no one really cares as people await to read the policy doc which itself is a significant reading for most people in the markets.
This review has pretty much said what RBI has been saying for a long time…we are in a fix and not sure what is the way out:
Banca Monte dei Paschi di Siena based in Italy is the world’s oldest surviving bank. It was established in 1472 in Siena. Now it seems its days of survival are being counted.
Elisa Martinuzzi & Vernon Silver of Bloomberg have this interesting story on how the oldest bank went aggressive before the crisis and is biting dust now:
Traditional Economics ignores quite a bit of real world. We study financial markets without the frictions, international trade without the borders etc. One another miss in terms of development is role of location. Most policies on development are made without any mention of role of location.
Edward Glaeser and Abha Joshi-Ghani write in this interesting piece on rethinking on the role of cities in development:
The late Prof. Albert Hirschman thrived on analysing paradoxes and that was his forte. His works hence make for a fascinating reading as it tells you one can never be sure about any situation. There are contradictions everywhere.
And what paradoxical times we are living in and nothing better to see it from central banking perspective which is just about figuring paradoxes. So on one hand we are talking about fighting for central bank independence (which is getting abused in many a ways) but at the same time we want to restrain central bankers.
So how do we manage these two together..how does one put a central banker on board which does justice to the independence but at the same time his/her powers are restrained..
So there are these two articles. First by Marcel Fratzscher , a former head of International Policy Analysis of ECB. Second by Luigi Zingales of U Chicago.
First Fratzscher:
RBA released its Statement on the Conduct of Monetary Policy. This is released once in every three years. It is a kind of a joint statement by the central bank and Aus treasury on common understanding between the two on mon pol in Aus:
Fascinating history again.. Carlos Álvarez-Nogal and Christophe Chamley point how the recent debt ceiling crisis has parallels way back in Spain in 1575:
The recent showdown over the US debt ceiling can be thought of as a game of chicken over the repayment of sovereign debt, with potentially severe consequences. This column describes an analogous historical episode in Spain, in which city delegates in the Cortes resisted tax increases, and Phillip II responded by suspending payments on a portion of the sovereign debt. By the time the cities caved to a doubling of their tax contribution two years later, the resulting bank failures and credit freeze had caused lasting economic damage.
Matthew Darling, Saugato Datta, and Sendhil Mullainathan write a short note on what behavioral economics stands for.
There are more and more articles, books and websites explaining behavioral economics. But we’ve noticed something in our conversations. As people learn more about behavioral economics, misconceptions creep in. There are three misperceptions we see quite frequently:
“Behavioral economics is about controlling behavior…”
“Behavioral economics is liberal (or conservative)…”
“Behavioral economics is about ‘irrationality’…”
Just as a sculptor must chip away every part of a rock that is not an elephant, it may be useful to define behavioral economics by what it is not.
Beh eco is not about these three claims:
A reent NBER paper analyses the shipping industry. It is by Robin Greenwood and Samuel Hanson of HBS.
In the recent HBS Working Knowledge section, the authors discuss the paper. They show how shipping industry never learns from its mistakes. It overbooks ships during booms and then ends up paying for the losses in busts. The times are never different.
A really interesting paper by Vasiliki Fouka and Hans-Joachim Voth of Universitat Pompeu Fabra .
The paper is summarised in voxeu. There is a higher decline in German car sales in those Greek areas where war attrocities by former was higher!
Two interesting pieces on how governance is doing world of good to State of Tripura, First in EPW by Subhanil Chowdhury and Gorky Chakraborty and second in BS by Prof. Devesh Kapur.
First Prof. Kapur points how its CM Mr Manik Sarkar from CPI(M) is going to be the longest serving CM in India’s history:
Mostly Economics 