Prof Joseph Stiglitz chips into the debate over state of macro.
Archive for September, 2014
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).
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.
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:
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:
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..
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:
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:
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.
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…
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:
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.