Institutions vs policies: Interview of Peter Henry Blair..

IMF’s Finance and Development Dec-2013 edition profiles Prof. Peter Blair Henry of NYU.

Always interesting to read these interviews to get perspective on research:

The Recent Boom in House Prices: Why Is This Time Different?

Takes guts to write such pieces.

Carlos Garriga of St Louis Fed says this recent house price boom is different:

What If: “Lehman Sisters’ or the Sisterhood Ran G20 and Big Business?”

Women in Parliaments Global Forum (WIP) has this annual summit discussing several issues related to gender, diversity etc.

One such session was stirringly titled as –” Reverse reality – what if: ‘Lehman Sisters’ or the sisterhood ran G20 and big business”.

Thanks to this speech by Jorg Asmussen of ECB at the panel that I came to know of it. He points how ECB is promoting gender diversity in ECB. 

Nice thought though..Lehman sisters…

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Can central bankers save the world (or is the world worth saving)?

Mr. Norman Chan, Chief Executive, Hong Kong Monetary Authority has this nice speech with a provocative title. Obviously central bankers cannot save the world but they try and try hard. But most of the time they put the world into a bigger hole. Infact the fab book Lords of Finance does suggest central bankers in the four economies could have saved us from the great depression. But it was not just them but the politicians who were reluctant to let gold standard go. At the end of the day it is the political system and the historical path  which matters. Central bankers are a part of this system and play their own bit.

He begins asking is the world worth saving?

Is there a PhD premium in The Netherlands (or anywhere)?

This is one of the most depressing student a PhD student always faces. Hey mate, what are you going to get after doing a PhD? And the head sulks and head fumes as there is no answer…:-)

Doing a PhD at one of India’s most elite B-schools one sees this happening right in front of you. The MBA students keep telling you about their great summer placement, final placement, rupee salary vs dollar ones and so on. And as a PhD student you can only look as if your world is very different and these things do not apply to you..

Anyways. got this email from CPB-Netherlands where there was a seminar on this topic. It seems there is hardly any premium for doing PhD in Dutchland..

Being a graduate student in economics…

Thomson, William of Rochester Univ has a nice note on this. Pretty long one at that too.

He sums up most of the activities/pains/action points of a PhD program..

Nice stuff..

Should we compare economic situation of emerging economies with respect to 1997-98 or 2007-08?

A brilliant question posed by Prof Andres Velasco of Harvard.

Chile versus Argentina..similar economies different outcomes

Michael J. Boskin of Stanford University has this nice article in Proj Synd.

Iran: From Hyperinflation to Stability?

Prof. Steve Hanke of Cato is a hyperinflation expert and tracks such regions carefully.

In this post, he says Iran is out of hyperinflation for now..

Over a year ago, I uncovered the fact that Iran experienced a period of hyperinflation (in early October 2012), when its monthly inflation rate peaked at 62%. Since then, I have been actively monitoring and reporting on the IRR/USD black market exchange rates and calculating implied inflation rates for the country.

Since Hassan Rouhani took office, on August 3rd, Iranian expectations about the economy have turned less negative. Thus far, it appears Rouhani has been successful in ending the long period of economic volatility that has plagued Iran, since the US imposed sanctions in 2010. This has been reflected in the black-market IRR/USD exchange rate, which has held steady around 30,000 in recent weeks (see the accompanying chart).

There are three main factors at work here. The first is a concerted effort by the Rouhani administration and the central bank to curb Iran’s inflation. This stands in stark contrast to the previous regime, whose strategy was to simply deny that inflation was a problem.

The second is that that Iran’s economy has proved remarkably “elastic” – meaning that the country has ultimately adapted to the sanctions regime and has found ways to keep its economy afloat in spite of them.

The third factor in the rial’s recent stability is an improvement in Iranian economic expectations. This is where the P5+1 talks come into play. Iranians recognized that easing of the sanctions regime would be a bargaining chip in any nuclear negotiations. In consequence, their economic expectations improved as the talks progressed. Indeed, Saturday’s announcement gave these expectations a shot in the arm.

Where will it go is to be seen..

Court case between Railroad company and government after 100 years!

Amazing story this.

The US government has sued for a parcel of land used by railroad companies in 1875 or so:

In the 19th Century, when railroads were being built across the West, the federal government granted significant land and benefits to railroad companies. The Great Railroad Right-of-Way Act of 1875 empowered the government to grant railroad companies right-of-way easements to build tracks across others’ land to facilitate the expansion of the nation’s railways – that is, railroads were granted a right to use sections of another’s property for railroad purposes without owning title to the land underneath. In 1976, the government sold the Brandt family a parcel of land in Wyoming which was crossed by one of these railroad easements.

In 2001, the railroad that owned the easement formally abandoned all claims to it.  Typically, when this happens, the easement is simply extinguished and the owner of the land may then use the former easement however he or she wishes. But the federal government had different plans for the thin strip running through the Brandts’ land. In 2006, the government sued for title to the land lying under the former easement on the theory that it had retained a “reversionary interest” in the land when granting the railroad the right of way easement, even though it never actually set aside any interests when granting the easement.  The government thus claimed that after the railroad abandoned the easement (after only ever owning an easement and never full title to the land), full title to the land “reverted” back to the federal government. The Brandts argue that under the basic principles of the common law of property, the government had no such right, and that even if any legislative act allowed the government to somehow acquire their land, such an act would require payment of just compensation under the Fifth Amendment’s Takings Clause.

Although this may seem like a small, unique problem, the scope of the Old West’s railway system was huge and those old easements criss-cross the land of thousands of property owners. In 1983, Congress amended the National Trails System Act to allow the government to take abandoned railroad easements and turn them into land for public recreation and “railroad banking.” Landowners have been fighting the taking of their property under the Trails Act ever since, claiming, as here, that the government’s original grant to the railroads contained no residual right of possession for the government.

Amazing really..

 

FCNR (B) Swap Window: Basics and Hype (it is just old wine in new packaging)..

There is much talk and discussion around how RBI’s new FCNR (B) swap facility has been a magic wand. Magic wand it has been as suddenly risks have disappeared.  But as this post argues this facility is nothing but an old wine in new packaging. In many ways it goes back to previous such measures when currency risks were taken away from these foreign inflows.

It worked in the past too and has worked even now. At times, policymakers have not really communicated that the magic wand was working, perhaps keeping a low profile.

What follows is an analysis beginning with basics of various types of NRI deposits, trends in each deposit and recent RBI window. It is quite detailed as the idea was to also explain things to myself and keep it for future references as well. So people will have to bear with the length of the post.

Closing ATMs in Bangalore …what exactly is government’s role?

The recent attack at a bank ATM in Bangalore is deplorable and has to be condemned to say the least.

However, what was amazing was to note the policy response to prevent such attacks in future.The Bangalore Police first asked all ATMs to have security deployed at ATMs and then shut down 1,037 ATMs after they failed to comply with their directive on security measures. Is security just responsibility of the banks?

A case of dengue epidemic and India’s misgovernance..

Indira Rajaraman ponders over recent state elections and why there is an astonishing lack of debate on economic issues in states.

How big is Hyderabad’s share in Andhra Pradesh revenues?

Gautam Pingle of Administrative Staff College of India, Hyderabad does a great job in clearing the mist around this debate.

He nicely points how several media articles had misleading analysis showing Hyderabad has a very high share in AP’s tax revenues. This chaos was not even cleared by the AP politicos as they were busy trying to get more mileage out of the divide:

Economic benefits of wheeled transportation in Colonial West Africa

A fascinating econ history paper by the trio – Isaías Chaves, Stanley Engerman, James Robinson.

It looks at political economics of why wheeled transport was not introduced in West Africa in colonial times. More interestingly, it shows how railways could have created a visible impact in these economies:

Why ‘Incredible India’ is simply not that incredible..(case of Taj and Agra..)

Nikhil Inamdar of Business Standard has this nice article exploring woes of tourism in India.

I would say India is incredible but we are just hell bent on making it uncredible. Thanks to our superfluous policies which like “shekhchilli” keep blowing our own trumpet without looking at ground realities. So the campaign Incredible India which showcases India’s tourism potential just fails to look at basic facilities needed to make tourism work. So despite the potential, we just do not get anywhere. The hype around potential remains just like we see in case of growth but that is where it remains. 

Inamdar ponders why Agra remains such a poor tourist city:

Bank vs. Bond Financing Over the Business Cycle…

A nice short note on corporate finance and particularly on debt side.

It looks at how firms finance their debt positions over the business cycle. In recessions, firms rely more on corporate bonds:

The choice of bonds versus bank loans is important from a macroeconomic perspective because some types of debt may be more or less resilient, or countercyclical, during recessions or times of financial distress.¹ For instance, De Fiore and Uhlig (2012) point out that total bank loans behaved in a markedly procyclical manner (with a lag) during the recent financial crisis, while bond markets did not.² As the third chart shows, over the 2007-13 period, the correlation between the growth rates of real gross domestic product (GDP) and real bank loans is 0.32 and that between real GDP and real bonds is close to zero (0.0048). So, while bank lending contracts during a typical recession, liquidity in bond markets may not.

To focus on changes over the business cycle, we further decompose the data to extract the secular (long-run) growth of bond finance and the slower but secular decline of bank finance. As shown in the fourth chart, which plots the cyclical component of the two series,³ bank loans are indeed markedly procyclical, contracting significantly during recessions and recovering during expansions even when the trend is removed. Liquidity in bond markets, however, is actuallycountercyclical. Since 1952, the correlation between the cyclical component of real bank loans and real GDP is 0.34, while that between the cyclical component of real corporate bonds and real GDP is –0.21, confirming the evidence in the third chart.

Why are the correlations with the business cycle so different for these two forms of debt financing? One possibility is that uncertainty may increase during hard times (Bloom et al., 2012), forcing banks to more intensely monitor and screen customers, reducing the cost efficiency of banks as financial intermediaries and reducing risk-taking behavior (Gaggl and Valderrama, 2013). Another possibility is that aggregate data mask large differences in firm-level choices over the business cycle: Bank lending may contract considerably for some borrowers but expand for others, producing a net contraction during recessions. Because bond borrowing is used primarily by large, extensively screened firms, these firms’ use of bonds is less likely to be influenced by cyclical factors.

It is important to note that some firms may be protected from the harmful effects of financial crises by the ability to easily substitute one type of debt with another; this is not the case for all firms. Examining heterogeneity in access to financing through bank loans and bonds across borrowers and local banking markets could yield new insight into business cycle dynamics and new options for policymakers in difficult times.

Hmm..

India’s true count of subsidies..

It is well known that fiscal accounting is mostly an illusion where the finance ministry like a magician tells the world how good his/her budget is. Reality is a lot different. There is little doubt that one of the most skilled accountants/lawyers work for Ministry of Finance who know how to make things look really good and rosy.

It is job of analysts and economists to poke holes at the numbers and dig deeper. However, this job is really tough as one usually gets lost in plethora of information. This blogger has been trying to figure government cash balances for a while but has not been successful.

It is here that Rajiv Shastri of Pramerica Asset Managers does an interesting job to show the true amount of subsidies in the country. He says there are two ways to look at the subsidy picture in India:

RBI and the shifting sands of advice..

RBI recently released minutes of Technical Advisory Committee on Monetary Policy for meeting held on October 23, 2013.  I wanted to write a post on how the TAC members have changed their views this time compared to previous meetings.

Manas Chakrabarty of Mint does the job for me. The advisers are perhaps as confused as anyone is on Indian economy outlook.He narrates the tale of how TAC members voted in same quarter policy in 2012 and compares it to the voting pattern this year:

Comparing India’s current problems to UK’s problem in 1970s..

Prof. Naveen Srinivasan of IGIDR in Mint points to some historic lessons from a monetarist lens. He says one cannot maintain a tight mon pol if fisc is out of shape.

He compares India’s inflation woes to  UK’s 1970 problems: