Archive for January 4th, 2017

Crowds continue outside RBI Bangalore for day 2..

January 4, 2017

The nightmare continues for people. First Indian citizens realised late that Govt/RBI have gone back on their earlier promise. Only those citizens who were outside India in the period 8 Nov 2016 to 30 Dec 2016 and can prove so could exchange old notes of Rs 500 and Rs 1000 at RBI offices. RBI just allowed this facility at 5 of its offices  – the 4 metros plus Nagpur.

People who were outside the country and are from Bangalore (and from other places than those five) realise that Bangalore is not part of the list. So now,  they have to travel to one of those 5 places to exchange:

(more…)

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Doves, hawks … and pigeons: How bevaioral biases influence central bankers decisions..

January 4, 2017

Donato Masciandaro of Bocconi University has a piece showing how behavioral biases impacts decision of central bank officials:

…what happens if we assume that psychological drivers can influence the decisions of the central bankers? In a recent paper, my co-author Carlo Favaretto and I simulated a monetary policy setting with three different kinds of central bankers (Favaretto and Masciandaro 2016).

The members of an MPC (i.e. central bankers) can be split into three groups – doves, pigeons, and hawks – depending on their monetary conservativeness. In the monetary policy literature, a specific jargon has been coined: a “dove” is a policymaker who likes to implement active monetary policies, including inflationary ones, while a “hawk” is a policymaker who dislikes them (Chappell et al.  1993, Jung 2013, Jung and Kiss 2012, Jung and Latsos 2014, Eijjfinger et al. 2013a, 2013b, Neuenkirch and Neumeier 2013, Wilson 2014, Eijffinger et al. 2015); “pigeons” fall in the middle. Throughout time, the dovish/hawkish attitude has become one of the main focuses of the analysis of monetary policy board decisions.

 The model introduces sequentially the assumptions that each central banker is a high-ranking bureaucrat – i.e. a career-concerned agent – with his/her conservativeness, that a monetary policy committee formulates monetary policy decisions by voting with a simple majority rule, and finally that loss aversion characterises the behaviour of the central bankers – i.e. for every monetary policy choice, losses loom larger than gains, and both are evaluated with respect to the status quo.

The framework shows that, given the three types of central bankers, the introduction of loss aversion in individual behaviour influences the monetary policy stance under three different, but convergent, points of view. First of all, a moderation effect can emerge, i.e. the number of pigeons increases.  At the same time, a hysteresis effect can also become relevant: both doves and hawks soften their stances. Finally, a smoothing effect tends to stabilise the number of pigeons. The three effects consistently trigger greater interest rate inertia, which is independent of both the existence of frictions and the absence or presence of certain features of central bank governance.

Loss aversion can explain delays and lags in changing the monetary policy stance, including the fear of lift-off after a recession. Needless to say, the behavioural motivation doesn’t rule out the other motivations already stressed in the literature.

No owls?

It is surprising to see it take so long for such literature to emerge…

RIP: Sir Dwight Venner, one of the longest serving central bank governor…

January 4, 2017

Just learnt of this.

Sir Dwight Verner was the Governor of Eastern Carribean Central Bank from 1989 t0 2015. The implies a 26 years tenure, one of the longest tenure in the world.  which is the longest tenure for a central bank chief in the world. He just passed away on 23 Dec 2016.

Thy year end also saw the demise of Hans Tietmeyer, the former chief of Bundesbank (1993-99). He played an instrumental role in transition of European countries towards Euro.

Update:

The post is not correct as pointed by one of the vistors to this blog – Mr. G Sreekumar. He points  Mr. Erik Hoffmeyer of Denmark central bank having the longest tenure of 30 years. I just checked and this seems to be correct. Thus, have made changed in both the title and content of the post. So much so for central bank history.


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