Reconstructing macro theory to manage maco policy

Prof Joseph Stiglitz chips into the debate over state of macro.

India’s food inflation and linkages with overall inflation trends

Rahul Anand, Ding Ding and Volodymyr Tulin write on the topic.

They say food inflation cannot be ignored as it has wider linkages with overall inflation:

Why US yields trending lower despite Fed intending to exit?

These are the recent trends in US treasury yields:

• US 10 Year started the year at 3% and is currently at 2.5%.
• 30 year at 3.92% and currently at 3.18%.
• 5 year is steady starting at 1.72% and currently at 1.77%.

Jérémie Cohen-Setton of Bruegel Blog wonders why is this happening? As Fed is expected to go off the stimulus, the yields should actually be rising. We are staring at the same problem as seen in 2005 called Greenspan conundrum (then most macro things were named after him).

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Choosing between Apple iPhone 6 and iPhone 6 plus..insights from beh eco

Cass Sunstein points to this really interesting insights from the field he knows best – behavioral economics.

He says people make different choices when buying a product standalone vs buying it in combination:

Americans work too long (and too often at strange times)..

Daniel S. Hamermesh and Elena Stancanelli point to this interesting post.

They say Americans work more on weekends and night time than Europeans:

Indian policymakers flip-flop over FII flows..

EPW edit raises the point but misses the main point.

The sheer opportunism of Indian policymakers towards capital inflows is outright double standards. It should actually be titled as a convenient love-hate affair between Indian policymakers and capital inflows. When economy is in trouble we make all attempts to encourage and support capital flows. Just bring them in is the motto. All kinds of statements and proposals are made to attract flows of all kinds – debt. equity, NRI deposits. Just name it. All kinds of representations are made in foreign shores calming and assuring foreign investors.

And then as things stabilize you start talking about hot flows and become artificially uncomfortable. You suddenly acquire new clothes (there aren’t any actually) and express the discomfort towards these flows. The idea is to make sure if things go the other way, you can say I told you so. Be on both sides of the road.

Connections between NY Fed and Wall Street (read Goldman) getting exposed

Over the weekend, some really interesting and scandalous story broke out. Propublica’s Jake Bernstein wrote this long article showing how the cosy relationship between NY Fed and Wall Street. As if this was anything new really. Michael Lewis adds more to the story.

The difference is Bernstein gets this former NY Fed  regulator Carmen Segarra to speak up. Segarra was an onsite supervisor a Goldman Sachs. Onsite regulators are those who actually sit in the office of the regulated entity. She was assigned Goldman Sachs and in act of bravado she taped her conversations while being in conversation with NY Fed and Goldman officials. The tapes show how NY Fed officials were just so afraid to ask Goldman to behave.

And this was after NY Fed actually appointed someone to sort its culture right. Lewis adds:

Thinking about the yield curve in Euroarea..

An oldish speech by Vítor Constâncio of ECB, which I missed linking.

Euroarea is both frustrating and interesting in most matters. It does not change when we think about the yield curve.

First, what is it about the yield curve?

How China’s central bank works?

WSJ Blog explains:

Unlike the U.S. Federal Reserve and other western central banks, the People’s Bank of China isn’t independent of the government. It reports to the State Council, the Chinese government’s top decision-making body and as a result, the PBOC has no real control over China’s monetary policy.

But on inflation front, China has had low inflation for a while. So even if the central bank is not so called independent,  it has managed to keep govt at bay:

Prof. George Akerlof or Mr. Janet Yellen?

It was kind of funny to get this post from WSJ blog. It is trivia really but is fine given it is Friday evening.

Improving inflation statistics…

Herve Hannoun of BIS has a nice speech on the topic. The speech is given during Irving Fisher Committee Conference.

He says monetray stability can only be achieved if we know the actual  inflaiton level. For latter, we need to continue to review our stats

As monetary stability is no less important, I find it highly appropriate that the first session of this conference is devoted to “New monetary policy indicators”. No topic could be more topical, given the vigour of the current debate about the supposed threat of deflation. But no debate can be productive, especially at the policy level, unless the supporting data are sound. In this light, measures of inflation and inflation expectations are surely an appropriate focus for an intensive review by central bank statisticians – and I would like to raise the question here if the IFC might not play a catalytic role in that process. Let me start by revisiting the intricacies of inflation measurement

He points how fin markets say inflation is too low whereas households think it is high:

Has the public understanding of CPI measures improved? As you know consumer surveys reveal a large gap (6% in some cases1) between inflation as measured by the statisticians and inflation as perceived by the public. In other words, the general public may view price trends very differently from financial market participants who complain that “inflation is too low”. And, needless to say, if the central bank itself starts to express concerns that inflation is too low, it may find it difficult to convince the public of its case.

He shows how financial markets expectations of deflation in EU is misplaced given how the long term trends have been.

In the speech he also discusses ways to improve statistics on inflation..

Why NZ is worried about its overvalued currency?

Well, it is worried as the currency is overvalued!

In this speech RBNZ chief Graeme Wheeler discusses why NZ currency is so strong. He first says that there are some reasons for currency to appreciate:

When economic policy becomes a crime and policymakers criminals…

Prof. Michael Boskin reflects on the recent reaction by Venezuelan polity on Prof Ricardo Hausmann. Prof Ricardo Hausmann questioning economic policy in Venezuela in this article Should Venezuela Default?” Hausmann is a former minister of Venezuela and currently a Prof at Kennedy School.

Prof Boskin says this is getting bizarre:

Is Economics a Science? Dogmatic Economics Vs. Reflective Economics..

Fixing the economists Blog has this interesting post on the topic.

This is one of the most important philosophical questions regarding economics- is it a science? Econs surely believe and have tried to model  their ideas as Science like with laws and theories etc. This is met with criticism as these laws are not universally applicable and are inconsistent.

But then what is science at the first place? There is huge disagreement on the same. The blog defines science and then sees whether economics fits as a science:

Lessons from Scotland referendum: We need more modest/smaller forms of government..

Though the voting supported Scotland remaining in UK, the stress over basic governance is increasing in most parts of the world. People are growing frustrated with their governments to provide even basic services.

Richard W. Rahn of Cato says we need to reorganise our states to smaller sized ones.

Pradhan Mantri’s Jan-Dhan Yojana – a supply side approach to financial inclusion

There are two aspects to financial inclusion – demand driven and supply driven. In demand driven the focus is on improving things like financial literacy etc to highlight importance of financial inclusion. Supply side looks at improving things at banks side like pushing opening of bank accounts, easing dealing with banks etc. Econs prescribe policy solutions for both sides but in reality both are needed. If one just works on demand and there is no response from supply or if things improve on supply front but not on demand, fin inclusion is not meaningful.

This article by Claire Célérier and Adrien Matray discusses how US eased its supply side issues.

Indian Govt’s recent drive  to push financial inclusion  – Pradhan Mantri’s Jan-Dhan Yojana – is another supply driven approach. Camps are being set up to push people into opening their bank accounts. The idea would be to then use bank accounts to provide transfers etc directly to the needy. Given recent numbers, what the govt has managed to do in just a few days takes years if done normally. Govt’s resolve to do anything is easily the biggest way to achieve any task.

K@W discusses this new initiative and says demand side issues are as important. It also discusses other issues with the program.

We have had many state led programs to drive financial inclusion. Will have to wait for the results…

Impact of high speed trains on firm productivity..

As India moves towards the High speed Bullet trains, one needs to see all kinds of evidence.

In this article Andrew B. Bernard, Andreas Moxnes, Yukiko Umeno Saito show how the high speed link improved firm productivity in a Japanese location. They show firm productivity improved more so for input intensive industries:

Is economic progress good for society?

Jeremy Caradonna Professor of History at the University of Alberta writes this interesting article based on his recent book. I mean one may totally disagree with his view but it should be read.

He questions one of the most important beliefs impressed by econs – importance of econ progress. He questions this idea that industrial revolution has only helped in progress.

Fed has a problem buying private sector assets and ECB has a problem buying govt. assets….

Economists differ greatly on what a central bank can do and not do. Adam Posen is in the camp

In this oldish speech released recently, he reflects on recent ECB measures. He says somehow the bad ideas that central banks cannot stimulate economies keeps coming back:

Liquidity: Meaning, Measurement and Management

Title of Robert Lucas speech at St Louis Fed. A rare readable paper from Prof Lucas 🙂

He starts visiting the objective of Canada central bank: