Archive for June 29th, 2016

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:

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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I don’t know but on monetary policy front, we tend to pick either out of date ideas or rejected ones (not the same).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.

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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?

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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.


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