Archive for July 26th, 2018

A dialogue between a populist and an economist

July 26, 2018

4 IMF economists have this interesting way of presenting research. The research is on trying to understand the rise of populism in the world. One could just go about preparing a research paper with detailed lit review, research 0bjective, research gap, methodology, empirical estimation, result explanation and then conclusion.

But instead the econs choose to explain their research via a dialogue between a populist politician and economist:

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Turkey’s Attempt to Mop up Mattress Gold (Lessons for India?)

July 26, 2018

JP Koning has a nice post reviewing few measures taken by Turkish Govt/Central bank to monetise gold:

This measure which allows commercial banks to park gold to get central bank reserves is interesting:

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The history and future of Quantitative Easing…

July 26, 2018

Ben Broadbent of Bank of England reviews the experiences of QE policy. He remembers Friedman and Shwartz’s work on US monetary history:

In 2002, the University of Chicago held a 90th birthday party for the great American economist Milton Friedman. One important guest was Anna Schwartz, who four decades earlier had co-written with Friedman the landmark book A Monetary History of the United States.

It’s possible that, even among those of you prepared to give up a pleasant July evening to come to a talk by a central bank official, an 800-page tome entitled “A monetary history of [anywhere]” won’t have found its way to the very top of your holiday reading list.

But it’s actually a gripping read, especially the chapter about the Great Depression. It also has a claim as the most influential piece of economic history ever written. The book pioneered a new “narrative” approach to identifying independent changes in monetary policy – the idea being that, to separate these from the more automatic (“endogenous”) reactions of policymakers to the economy you needed to scour the historic record and understand how their decisions were actually taken.

It changed economists’ perceptions of the role of monetary forces, including monetary policy, in economic fluctuations. For example, it helped to establish the view that the effects of monetary policy on real variables – real national income or its distribution, for example – are in the long run negligibly small. You cannot permanently enrich a country, or raise real wages, simply by easing monetary policy and engineering some inflation.

Equally, the book argued that policy can have very powerful effects at shorter, cyclical horizons. In particular, it claimed that the Great Depression could have been averted had the US Federal Reserve not over-tightened policy in the late 1920s and if had it acted more precipitously to loosen it once the downturn
began. The appropriate measures would have included an earlier abandonment of the gold standard. They would also have involved “large-scale open-market purchases”, designed to contain the rise in private-sector bond yields and supply reserves to the banking system. We have a new name for this – we now call it
“Quantitative Easing” – but the policy itself is not new.

He says QE is not printing money and has had impacted on the lines of Friedman/Schwartz:

QE has often been described as a “new-fangled” policy, something that involves “printing money” and has served only to engineer large rises in the prices of financial and other assets, benefiting only the better off. 

Broadly speaking I don’t think any of these things is true. It’s not new; it’s not exactly printing money; equity and house prices are in real terms still comfortably below their pre-crisis levels; inequality hasn’t risen – nor, according to the most detailed analysis available, did easier monetary policy have any net impact on it.

To be sure, asset prices would probably have fallen further had QE and other measures not been put in place in 2009. The same goes for the economy itself. As far as we can tell, asset purchases provided significant support to aggregate demand, even if it wasn’t enough to offset fully the extended contractionary
effects of the crisis. Perhaps Friedman and Schwartz over-emphasised the failures of the US Fed as a cause of the Great Depression. But I don’t think anyone can reasonably argue it was worth risking those same mistakes a second time.

Later rounds of QE may have been less effective than the first. In the US, where the Fed has begun to shrink its balance sheet, its “QT” announcements appear to have had very little impact. At least in part, that’s likely to be by design. The pace of unwind is very gradual. And the FOMC emphasised that, to the
extent a shrinking balance sheet tightened monetary conditions the official interest rate would be commensurately lower (than it would otherwise have been). The overall stance of policy would be set to ensure the central bank meets its objectives.

The same is true here. Our task remains to hit the inflation target and we will always seek to ensure that the combined effects of the APF and of more conventional changes in Bank Rate are set to that end. 

The debates on QE being a success or failure will interest econs for a long time…

How Ronald Coase continues to influence and inspire economics…

July 26, 2018

Prof Barak Richman has written a book Stateless Commerce.

He pays tribute to Coase for inspiring the book:

Although I never met Ronald Coase, his thinking has had a meaningful influence on my own work, nowhere more evident than in my recently
published book, Stateless Commerce: The Diamond Network and the Persistence of Relational Exchange.1 Although it is hubris to suggest that my
book might have garnered some of his attention, one of my biggest regrets in taking so long to complete the book—a project that by some measures was
nearly 20 years in the making—is that it was ultimately published after Professor Coase’s death.

At this panel at the Canadian Law and Economics Association Annual Meeting, which is dedicated to “the Legacy of Ronald Coase,” I take
this opportunity to identify three foundations of Professor Coase’s intellectual legacy—three paradigmatic elements of what constitutes a Coasean framework— that had deep influence on my research and my book.

First, Professor Coase encouraged economists to be curious about problems and puzzles of real-world phenomena. As Ning Wang remarked at this
panel, Professor Coase once asked rhetorically, “Do we concern ourselves not with the puzzles presented by the real economic world but with the
puzzles presented by other economists’ analysis?

Second, the Coasean analytical lens was never unidimensional. Both his 1937 and 1960 seminal articles pose contrasts between systems of commerce: in
1937,4 it was the market and the firm, and in 1960,5 it was the rancher and the farmer. Professor Coase’s overarching questions in both landmark articles were broad and ambitious, asking what happens when two separate spheres of commercial activity collide with each other within a common economic space.
The research questions never focused on single variables or myopic hypotheses. They instead understood the complexity of human behaviors and the many
economic forces that shape real-world endeavors.

And third, Coase urged employing comparative institutional analysis. The question is not how to achieve ideal efficiency but instead to understand and
compare alternative methods of organization. I consider this to be a consummately scholarly approach to economics. It rejects ideological predispositions
and hypothetically perfect markets and instead tries to assess the relative merits and drawbacks of different economic contexts.

He adds how his book tries to fit around Coasean framework..


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