Archive for November 6th, 2017

Global real interest rates since 1311: Renaissance roots and rapid reversals

November 6, 2017

Superb insights by Paul Schmelzing in Bankundergound blog.

With core inflation rates remaining low in many advanced economies, proponents of the “secular stagnation” narrative –that markets are trapped in a period of permanently lower equilibrium real rates- have recently doubled downon their pessimistic outlook. Building on an earlier post on nominal rates this post takes a much longer-term view on real rates using a dataset going back over the past 7 centuries, and finds evidence that the trend decline in real rates since the 1980s fits into a pattern of a much deeper trend stretching back 5 centuries. Looking at cyclical dynamics, however, the evidence from eight previous “real rate depressions” is that turnarounds from such environments, when they occur, have typically been both quick and sizeable.

Despite much research into the causes of real rate distortions in recent years, the discussion has arguably suffered from a lack of long-term context. Key additions – such as the  influential BoE staff working paper confirming the role of excess savings and lower investment preferences – typically trace back their observations to the late Bretton Woods period, or at best to Alvin Hansen’s time in the interwar period. Hamilton et al. and Eichengreen are rare exceptions in their inclusion of 19th century data.

Therefore, the majority of work on secular stagnation– and with it the debate regarding bond market valuations  – fails to consider the deeper historical rate trends. In contrast, a  multi-century dataset  offers the opportunity to look at cyclical behavior and the dynamics of reversals from earlier real rate depressions.

Quite a few charts and details there…Conclusion:

On aggregate, then, the past 30-odd years more than hold their own in the ranks of historically significant rate depressions. But the trend fall seen over this period is a but a part of a much longer ”millennial trend”. It is thus unlikely that current dynamics can be fully rationalized in a “secular stagnation framework”. Meanwhile, looking at past cyclical patterns, the evidence suggests that when rate cycles turn, real rates can relatively swiftly accelerate.

Hmm…

The 10 Greatest Hollywood Films for Teaching Economics

November 6, 2017

Interesting paper by G. Dirk MateerBrian O’Roark and Kim Holder which is freely available for download as of now.

We asked economic educators from around the country to identify five films that they found most useful in teaching economics. Our sample of 105 educators reflects wide-ranging opinions about the greatest films for teaching economics. We provide summaries of each of the Top 10 films in our list and short descriptions of the next 10. The films surveyed are an eclectic mix that spans different eras and genres. It is our hope that this list will spur conversations about economics among interested readers and economic educators. 

Some interesting movies featured in the paper like It is a Beautiful Life, Castaway and of course Wall Street.

Those more interested in the Bollywood movies, can follow the exciting Housefull Economics series!

Changing business models in international bank funding..

November 6, 2017

Leonardo Gambacorta, Stefano Schiaffi and Adrian Van Rixtel analyse the changes in this paper:

This paper investigates the foreign funding mix of globally active banks. Using BIS international banking statistics for a panel of 12 advanced economies, we detect a structural break in international bank funding at the onset of the great financial crisis. In their post-break business model, banks rely less on cross-border liabilities and, instead, tap funds from outside their jurisdictions by making more active use of their subsidiaries and branches, as well as inter-office accounts within the same banking group.

There is a difference between international banks and MNC banks:

Business models in global banking are generally distinguished between multinational and international banking (McCauley et al., 2010; Gambacorta and Van Rixtel, 2013).2 Multinational banks maintain sizeable foreign branches and subsidiaries in multiple jurisdictions, matching largely local assets and liabilities. In contrast, international banks conduct cross-border business predominantly from the country where they are headquartered or from international financial centres.

Then there is difference between centralised and decentralised models of funding. One can say international banks mostly use centralised models and MNC banks use decentralised models but there could be exceptions as well.

There are some other interesting details as well in the paper barring empirics alone…

Amidst discussions on India’s national food, India post issues 24 commemorative stamps celebrating Indian cuisine..

November 6, 2017

There has been a fair bit of discussion lately on khichdi being named as India’s national food only to be refuted by authorities later. In a country with so many cuisines, one wonders why bother about national food at all?

Taking a cue India Post issued 24 commemorative stamps celebrating Indian cuisine (HT: BetterIndia. As one scrolls the list, needless to say the mouth starts to water seeing most of the dishes (if not all). Just amazing diversity.

There is a discussion in ToI on origins of Hyderabad Biryani:

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Origins of economic divide between North Italy and South Italy…

November 6, 2017

Most countries/regions/cities are developed in a lopsided manner with one part having higher/better economic part than the other. In India, one often sees Southern part more developed than Northern (South India vs North India, South Mumbai vs North Mumbai. South Delhi vs North Delhi) and even West being more developed than East (Western India vs Eastern India). There are all kinds of possibilities here.

In Italy, North Italy is more developed than South Italy. Giovanni Federico, Alessandro Nuvolari and Michelangelo Vasta investigate and find:

 

Why are tech geniuses destroying jobs everywhere?

November 6, 2017

There is a lot of talk around need to create jobs in India (and other countries). But there is this whole irony in all this as amidst this talk of job creation, we are talking more and more about using technologies whose core purpose is to cut jobs!

Lant Pritchett in a hard hitting piece points to this basic dilemma:

Development economists are flying around the world to discuss and debate the challenge of creating jobs in the developing world. They will use automated check-in − both in the US and in developing countries. We cannot continue to ignore the obvious that technological progress is being driven in rich countries by distorted prices and availability of labour and is then inefficiently and uneconomically destroying jobs all over the world, making the dreams of billions around the world of escaping poverty and achieving prosperity through productive work harder and harder to achieve.
Haha. Talk about double standards…
He wonders why the brightest minds are creating problems for not so bright minds?

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How GDP obsession failed the economy (same with most economic indicators/indices/ranking)…

November 6, 2017

Umair Haque writes on the topic. He says Kuznets excluded advertising and finance from his idea of GDP. But then government thought why not include tham and blow the GDP?:

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