Archive for July 13th, 2018

On research in development economics: Interview of Dileep Mookherjee

July 13, 2018

Nice interview. Apart from discussing his work, Prof Mukherjee has advice for PhD students:

Q: The last question: can you give some advice for the Ph.D. candidates?

DMWell, be open-minded. That is the first important thing. Do not be wedded to any particular methodology. Look for a problem, a really important problem. Gauge that not just by what the professor thinks, or what your fellow students think, but also by talking to people in regular life. Second, it should not have received a lot of research attention already. You should study something new, or pursue a new angle to a classic problem. So there are two criteria: (1) it should be important. It should matter for people’ lives and for development. (2) It should not be studied already by many people. You should not want to do the 51st paper on some topic.

You should do something new and original instead. Those are the most important things in finding problems. Then go acquire whatever tool that is going to be the most useful. Do not be fixated upfront with either structural or reduced-form approaches. Go and see what data is available. Talk to people on the ground and then get a sense of what the right model is. Always look for scientific understanding first. You have to understand what is happening before you evaluate or suggest some new policies. That is what I would recommend.

How many PhD programs support doing something new?


Should Cryptocurrencies Be Regulated like Securities?

July 13, 2018

Diego Zuluga makes a case for regulating cryptocurrencies as securities:

  • The rise of ICOs has raised the question of whether cryptocurrencies are securities.
  • Regulating cryptocurrencies as securities would affect who can buy, hold, deal in, and keep custody of cryptocurrencies, and require varying disclosures.
  • Regulatory uncertainty is chilling innovation and increasing volatility in cryptocurrency markets.
  • Regulators should provide clarity on how cryptocurrencies fit within existing laws by adopting a framework that makes a distinction between functional cryptocurrencies, such as bitcoin, which are not securities, and promises of cryptocurrencies, which may in some cases be securities.
  • Securities regulations should only apply to promises of cryptocurrencies that are marketed as investments and tradable on secondary markets before they are functional: those that meet the Howey test legal precedent for determining a security.

So obviously cryptos then are not to be seen as currencies for making payments but to be seen as securities which are like assets. But how do we define a security?


Time to untie the ECB’s hands and revisit its longstanding price-stability objective

July 13, 2018

Stefan Gerlach (Chief Economist at EFG Bank in Zurich and Former Deputy Governor of the Central Bank of Ireland) looks at this evergreen issue of what a central bank should do.

He says ECB should revisit its price stability objective:

As a practical matter, the ECB’s price-stability objective, originally designed to protect the eurozone from Italian-style inflation, has ended up protecting it from German-inspired deflation. But just because the ECB’s mandate has forced it to do the right thing on occasion does not mean that we will be so lucky in the future.

The global financial crisis required advanced economies’ central banks to contend with circumstances that those who crafted their mandates scarcely could have imagined. The fact that things often do not work out as expected is precisely why central banks’ objectives should be written to give policymakers flexibility – or poetic license to bend the rules – when extreme events occur. Otherwise, policymakers will be less effective than they otherwise could be.

Because the ECB’s price-stability mandate is legally codified by the Treaty on the Functioning of the European Union, it cannot be altered without a treaty amendment. But the phrase “below, but close to, 2%” is the ECB’s own, and thus can be changed with the stroke of a pen.

As such, the ECB should consider two alterations. First, it should get rid of the ambiguity inherent in the words “close to,” by setting a point target to provide clarity to the public – and to ECB Governing Council members – about what its monetary policy aims to achieve. Whether that target is 1.8% or 2%, or whether it is surrounded by a range, is less important.

Second, the ECB must clarify how financial stability and business conditions factor into its policy decisions. Many have argued that lengthening the policy horizon by precisely defining “the medium term” would give policymakers room to pursue other objectives temporarily. After all, because financial crises and deep recessions are deflationary, they, too, jeopardize price stability.

With the ECB finally exiting the last crisis, now is a good time to reflect on what lessons it has (or should have) learned. The ECB must not delay in positioning itself for the next downturn.


These discussions and views on central bank objectives never end, do they?

KYC’s new full-form: Know Your Culture

July 13, 2018

Interesting speech by Jay Clayton, SEC’s Chairperson. Apart from central bankers, even securities market regulators are worried over slipping culture in financial services industry.

Clayton says looking at culture is no more optional but a must.


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