Archive for June, 2016

The jailed banker statistic in the making of Iceland team…

June 30, 2016

This bit of superb statistic on how Iceland got its footballers from whatever was remaining from necessary services is quite something.

The list has obviously been prepared by an Icelander who is either a person of detail or remembers and does not want to forget Iceland’s jailed bankers.

So amidst all the numbers it says Imprisoned bankers ……23




Why Ecuador escaped the fate of Venezuela despite following near similar policies?

June 30, 2016

With Prof Hanke you know the answer is always going to be dollarisation or currency boards.

So here it is. Prof Hanke says Ecuador which adopted dollarisation before its Socialist President helped save the country:


Behind Europe’s Populist Backlash: The Hunger Games of Neoliberal Economics

June 30, 2016

Another critique of mainstream economics. This one came last year but is highly relevant given Europe’s woes today.

A virulent strain of austerity capitalism takes over Europe, leaving shattered lives in its shadow, researchers Servaas Storm and C.W.M. Naastepad, Senior Lecturers in Economics at Delft University of Technology in The Netherlands, consider how things got so bad, what role economists and misguided policy-makers have played, and which models and ideas are needed to change course. In the following interview, they discuss how most are getting the story about Europe wrong. They explain how their research shows that when countries try to compete with each other by lowering wages and slashing the social safety net, the costs are high both economically and socially, and why co-operative and regulated capitalism is a far better path.

What do they say in the interview?


Wicksellian natural interest rate vs Keynesian neutral rate (and the need to know History of eco thought..)

June 30, 2016

I guess this blog could just be dedicated to the cause of knowing history and history of economic thought and be a history…:-)

With each passing day and article, one is beginning to realise how important concepts sketched out much earlier are impacting us and we have no clue.

In this post, Joseph Salerno says it is fashionable to say central banks’ policy rates should be in line with Wicksellian interest rate (How many macro people even know of Wicksell for instance?). It adds that historical dimension and prestige to it. However, this usage is more  Keynesian than Wicksellian as Wicksell would have last wanted the rates to be set by policymakers:


Europe on the Brink and an isolationist Britain turns her back in 1870..

June 29, 2016

Those familiar with world history would know there have been quite a few Brexit type moments specially in European history.

Here is a satirical map from 1870 which if drawn today would not look very different except many more countries in the map:


We should have constituted a Regional Monetary Policy Committee instead…

June 29, 2016

I don’t know but on monetary policy front, we tend to pick either out of date ideas or rejected ones (not the same). The whole idea is to just copy some idea happening elsewhere without giving it much thought. It was fine if inflation targeting was adopted before  2008 but we have adopted it now when most inflation targeting countries are just following it superficially at best.

Even when we have adopted inflation targeting, we continue to target exchange rate markets. Exchange rates is one of the first things central  banks give up on targeting inflation. Infact it was troubles with exchange rate monitoring which led central banks to look for alternatives which started with money supply and now interest rates. Read any central bank which (used to) practice IT and they tell you the same – we did away with exchange rate management.

But post adopting so called modern/ avant garde IT framework, our intervention in exchange rates  have also increased. This can obviously be seen with rising foreign exchange reserves which are shown as signs of strength. If we were actually serious about inflation targeting, these numbers should have disappeared from media reporting.

Some might say well we are being pragmatic too and need to defend the exchange rate from global volatility. Well, this is actually the reason we did not adopt IT at the first place despite several committees telling us so. Now we have adopted IT but continue to look at all other things like the older days. On superficial matters, we actually are in line with the other IT central bankers!

Moving further, now we have just notified setting up a Monetary Policy Committee. The thinking is that it will take the onus from one person to a couple of persons.This literature too had become a vogue following Blinder’s works on the same. This blog too covered this strand of research.

However, the time is ripe to look at whether MPCs have actually delivered? We have seen that in central banks having MPCs things have hardly changed much. All we have is a few dissents here and there with the view of the head prevailing at all times. I am still not aware of any instance whether the outcome was against the interest of the head of the central bank. Yes it could lead to some debate and disagreements with the chief but does not mean much. This must be happening even without MPC as we see in current arrangement of TAC as well. One has serious doubts whether it has delivered other than getting too many cooks at the table to spoil the broth.


What drives the weekly pattern of gasoline prices in US cities?

June 29, 2016

This is a fascinating piece of research. There are certain midwest cities in US like Denver, St Louis etc which have this cyclical pattern of gasoline (petrol)  prices. Prices rise on weekends and then fall on the weekdays. Why should this be the case?


When you dial 911 and wall street answers..

June 29, 2016

A team of NYT columnists have a piece which is shocking and disturbing (HT: INET Blog).

Since the 2008 financial crisis, private equity firms have increasingly taken over public services like emergency care and firefighting, often with dire effects.

A Tennessee woman slipped into a coma and died after an ambulance company took so long to assemble a crew that one worker had time for a cigarette break. Paramedics in New York had to covertly swipe medical supplies from a hospital to restock their depleted ambulances after emergency runs.

A man in the suburban South watched a chimney fire burn his house to the ground as he waited for the fire department, which billed him anyway and then sued him for $15,000 when he did not pay. 

In each of these cases, someone dialed 911 and Wall Street answered.

The business of driving ambulances and operating fire brigades represents just one facet of a profound shift on Wall Street and Main Street alike, a New York Times investigation has found. Since the 2008 financial crisis, private equity firms, the “corporate raiders” of an earlier era, have increasingly taken over a wide array of civic and financial services that are central to American life.

Today, people interact with private equity when they dial 911, pay their mortgage, play a round of golf or turn on the kitchen tap for a glass of water.

Private equity put a unique stamp on these businesses. Unlike other for-profit companies, which often have years of experience making a product or offering a service, private equity is primarily skilled in making money. And in many of these businesses, The Times found, private equity firms applied a sophisticated moneymaking playbook: a mix of cost cuts, price increases, lobbying and litigation. In emergency care and firefighting, this approach creates a fundamental tension: the push to turn a profit while caring for people in their most vulnerable moments.

Rising tomato price raises demand for tomato puree and ketchup..

June 28, 2016

People reacting to price signals with most hardly heaving studied economics.

AS tomato prices zoomed people used complements like puree and ketchup as these will factor in prices with a lag. They also used substitutes approach and started buying veggies which do not use much of tomatoes:

Demand for puree and has shot up by 40 per cent within one month as people have curtailed the use of tomato and prefer dishes which do not require much use of tomatoes, like lady finger or pumpkin etc, according to latest survey done by Assocham.

According to survey, the local grocers have also increased stock of tomato puree/ketchup. The local grocer said, in the last two weeks there has been a rise in sales of products such as puree, ketchup as one spends less on buying puree/ ketchup than a kilo of fresh tomatoes.
A rise in the price of tomatoes has affected the budgets of families in the city. As per the recent survey, about 78 percent of households find difficult to manage their household budget and squeezing families’ finances to the lowest level due to sudden rise in price of tomatoes, pulses. The maximum impact was felt in Delhi-NCR followed Mumbai, Ahmedabad.

Nice bit of seeing micro work in real life…

PV Narasmiha Rao’s successful economic legacy and troubled political one..

June 28, 2016

We are just a few days away from the momentous month of July-1991, a huge year in India’s economic history. Here is P.Chidambaram’s account  who saw things ticking being right there. What is really interesting how all this was done so quietly.

The 25 years that have rolled by have changed the face of India and the fortunes of millions of people who have been lifted out of poverty. I was lucky to have had a part in the various Acts of the drama that continues to play even today — the script was more or less the same, only the key actors changed from time to time.

The other difference — actually the BIG difference — is that while dramatic changes were being made to the economic policy, the government maintained a low profile and avoided any drama or hype. There were no choreographed ‘events’; even full-page advertisements were avoided. The first major exposition of the new policies was on July 4, at a seminar in Delhi. In September, Dr Manmohan Singh and I traveled to Singapore to address an India-specific conference that attracted investors and bankers from around the world.

Now it is just the opposite. All simple things are clubbed as reforms and game changers amidst huge show of pomp and plendour.

What is also interesting is that all these changes came when they were least expected.

Vinay Sitapati’s really timely book on the former PM PV Narasimha Rao will further ignite debates and conspiracy theories. In this account, Sitapati narrates how PVN took the economic agenda forward:


Iceland wins the football fight as well…

June 28, 2016

Despite least probabilities of Iceland winning you know with England there is always a chance. Their record in these football cup events is so poor that perhaps only South Africa competes with them for the top abysmal spot in cricket.

What a match. Take a bow Iceland!!


Do the Experts Know Anything?

June 28, 2016

Justin Fox wonders why we value experts’ views so much given how wrong they have been all this while. The focus obviously is on economic experts:


Brexit is the end of Fukuyama’s end of history??

June 28, 2016

Matt O Brien has a piece in WaPo.

He says Brexit changes the view of Fukuyama significantly:


The growing problem of excess weight in India…

June 27, 2016

Prof Pushkar Maitra and Nidhiya Menon write on the issue.

The Indian population is increasingly becoming overweight or obese, and this phenomenon is likely to impose a considerable health burden in the future. Analysing data from the Indian Human Development Survey, this column finds that obesity is more evident among affluent, well-educated, urban groups, especially adult women. Increasing incomes and sedentary lifestyles are key contributing factors.

The unintended consequences of rising incomes…

India’s extremes now move to health care as well. Earlier problem was mainly of malnutrition and underweight. Now both of these remain and we see the other extreme of over-nutrition and overweight catching up….

When tiny Iceland did beat England: It’s time to brush up on the Cod Wars

June 27, 2016

Euro cup 2016 has been a good one with lots of smaller teams stading to the might of big European teams. But I guess story of Iceland is perhaps the most inspiring. They meet England today and probabilities of their win are pretty slim.

But there will be a fight for sure. England should know this well given the bitter history of cod wars between the two teams. Here is a nice bit of story on the wars and how Iceland beat England in fishing wars…

How ECB has turned the central bank seignorage model upside down?

June 27, 2016

Of all the noise around central banks. this blog just likes the discussions around central bank balance sheets. Learning about central bank balance sheets is perhaps all there is to monetary policy. But again it is hardly emphasised enough.

Daniel Gros has a superb piece on how  negative rates have impacted ECB balance sheet. Things have turned upside down actually. Traditionally central banks issue liabilities at near zerocost and earn on its assets which is usually investment in government bonds. With negative rates, ECB earns on its liabilities and distributes its earnings across the Eurozone via the national central banks. ECB has become more like an investment bank which uses leverage to earn interest on its assets.


Why did Britain join the EU (and why the exit)?

June 24, 2016

What a moment for world political history. It keeps going in circles. First they unite then they divide only to reunite only to redivide..

Got this old post which looked at why Britain joined the EU. It was mainly to stop stagnation of UK economy. And why it exited? Well, it seems there are no benefits of the integration anymore..


Railways nudge to sensitise people towards subsidy on train tickets

June 24, 2016

Interesting bit from Indian railways. It will now be printing the subsidy on the railway tickets:


Why Fed (and other central banks) have a diversity problem?

June 24, 2016

Mark Calabaria has a superb post. He points how Federal Reserve staff comes mainly from economics programs of selected universities in US:


When appointment processes of Indian cricket coach and central bank chief gets mixed up..

June 24, 2016

The brilliant Manasi Phadke has another brilliant post.

BCCI. The hunt for the next Indian coach is on. A special panel will be interviewing potential candidates telephonically.

It is interview day, not only at the BCCI, but also at the RBI. The PMO has asked some economists to telephonically outline their plans to a special panel. As fate would have it, the lines overlap.

What follows is a laugh riot. How Manasi keeps coming with these gems. Kudos..

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