Archive for November 14th, 2018

Reflections on Bank of Engalnd’s 300 year history…

November 14, 2018

Another superb guest post on Bank of England’s Underground blog. This one is by David Kynaston who wrote Till Time’s Last Sand: A History of the Bank of England 1694-2013.

He points to key lessons from the 300 year history of the bank:

(more…)

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Paradise lost? A brief history of DSGE macroeconomics

November 14, 2018

Gulan Adam of Bank of Finland provides a brief overview in this paper:

Since the Global Financial Crisis, academic economists and policymakers have had to deal with uncomfortable questions about the quality of their models and the state of macroeconomics as a profession. This note offers a summary of this discussion, focusing on the Dynamic Stochastic General Equilibrium (DSGE) framework and its underpinnings. This class of models reflects both theoretical advances and perennial modeling challenges.

While DSGE modeling developed in times of scarce micro data and limited computational resources, it has much room for improvement given progress along these dimensions and advances in other branches of economics. Key tasks on the to-do-list for model improvement include the modeling on the financial sector, departures from the representative agent and rationality, as well as clarification of the empirical relevance of the Lucas critique. The framework is likely to remain a major research and policy tool, although its limitations call for greater robustness, validation and open recognition of uncertainty in drawing real-life quantitative conclusions.

We need more and more of such papers to help demystify the acronym DSGE…

Why Central bank autonomy is in the government’s “enlightened self-interest”…

November 14, 2018

Avinash Tripathi has a nice piece on the recent turmoil in relations between Indian central bank and government.

There is a bit of everything in the article: political economy, game theory, history, microeconomics and even Sherlock Holmes!

RBI deputy governor Viral Acharya in government crosshairs and what to expect if Section 7 of RBI Act is invoked…

November 14, 2018

Asit Ranjan Mishra of Mint on the ongoing drama between RBI and Finance Ministry.

The government may train its guns on Reserve Bank of India deputy governor Viral Acharya if the confrontation with the central bank escalates at the RBI board meeting on 19 November, a person familiar with the deliberations within central bank’s board said.

In case discussions between the government and RBI break down, the government may choose to invoke Section 7 of the Reserve Bank of India Act, 1934, and at least four of the 11 independent directors of the central bank could move a no-confidence motion against Acharya for publicly airing his views protesting government interference, the person said, asking not to be identified because of the sensitivity of the matter.

If Section 7 of RBI Act is invoked, the five representatives of the central bank, including governor Urjit Patel, and the two finance ministry secretaries have to withdraw from further deliberations of the board. The independent directors will then pass resolutions on contentious issues such as liquidity measures for non-banking financial companies (NBFCs) and micro, small and medium enterprises (MSMEs) and RBI’s 12 February circular.

“The danger in this board meeting is that it will boil down to voting. If both sides do not budge from their positions after their presentations, they will have to walk out of the room. The government is clear that there needs to be resolution of all the contentious issues at this meeting,” the person said.

Once the government invokes Section 7, the powers of the RBI board will be supreme.

“Subject to any such directions, the general superintendence and direction of the affairs and business of the bank shall be entrusted to a central board of directors which may exercise all powers and do all acts and things which may be exercised or done by the bank,” the relevant part of Section 7 (2) of the RBI Act says.

Hope RBI minutes the meetings and tells us atleast something…


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