Archive for December, 2018

20 years of Euro: Why single market is not just an extension of the globalisation process

December 19, 2018

Interesting speech by Mario Draghi of ECB.

He discusses the Euro project and tries to dispel several myths around the project. European countries were struggling after WW-II and wanted to avoid future wars. This led to the political leaders to try and build economic integration within members. They first started allowing easier trade policies between the  countries. After initial gains from intra-EU trade, the growth from trade began to plateau. This was largely because trade was mainly done in intermediate goods.

The Single Market was conceived during a period of weakness in the European economy. Annual growth had averaged just 2.2% from 1973 until 1985 in the 12 countries that would go on to form the euro area[1], down from 5.3% between 1960 and 1973. Growth potential had also fallen from about 5% per year at the beginning of the 1970s to around 2% per year by the beginning of the following decade.

The typical response of governments to low growth was to increase fiscal deficits. From 1973 to 1985, public deficits in the euro area 12 averaged 3.5% of GDP, while in Italy the average was 9% of GDP. Unemployment rose from 2.6% in 1973 to 9.2% in 1985 for the euro area 12. In Italy, it climbed from 5.9% to 8.2% over the same period.

But the EU had a powerful tool at its disposal to raise growth: the common market. 

One reason that growth potential had decelerated was that intra-EU trade growth had stalled in the early 1970s, because the common market covered mainly intermediate goods where growth was already saturated. Trade in sectors with high R&D and skill content was restricted by non-tariff barriers, preventing productivity spillovers.[2]

The Single Market offered a way to remove these barriers, reverse the decline in economic potential, and bring more people back into work.

The Single Market was different than Globalisation:



After pioneering inflation targeting, Reserve Bank of NZ leading the way in bank regulation as well..

December 18, 2018

Prof JR Varma blogs about Reserve Bank of NZ again leading the way in bank regulation.

RBNZ has decided to double the capital levels held by NZ banks. The approach to doubling the capital base is different:


Measuring financial capability of the street vendors

December 17, 2018

Amidst all the chaos, team RBI continues to function. Just pointed to an interesting short paper on state-wise impact of demonetisation on deposits and cash usage.

Came across this interesting paper released last weekend by D.V. Ramana and Silu Muduli of RBI:

Financial capability of an individual is the ability to use and manage financial products for current and future financial needs with adequate financial knowledge. This paper examines financial capability on four dimensions- financial management to meet current needs, future financial planning, financial products management, and financial knowledge using a sample of street vendors in Bhubaneswar, India.

A financial capability index for each individual in the sample has been calculated in a manner that satisfies monotonicity, anonymity, normalisation, uniformity, shortfall sensitivity and hiatus sensitivity to level axioms. We find that education, age, business experience, and daily turnover significantly affect the financial capability of an individual. Moreover, street vendors in regions with higher number of bank branches are found to have significantly higher financial capability.

These results are fairly intuitive as well..

History of British Dak Bungalows (and RIP Tulsi Ramsey)

December 17, 2018

Quite a coincidence.

As I was reading this history of Dak Bungalows by Aditi Shah of Live History India, came across this news of passing away of movie director Tulsi Ramsey. Both Tulsi and Shyam (Ramsey) made horror movies with Dak Bungalows as one of the cornerstones (along with Havelis, Darwazas etc) in their movies. There is even a movie by the name Dak Bangla (Bungalow) by the Ramseys. And not just Ramseys. other directors used it too. The mention of the two words was meant to tell the audience something is going to happen in the movie..

GOing back to Aditi’s piece, she writes on how these Dak Banglas became such a critical part of British infrastructure and our psyche. They were built to help deliver post (or dak in urdu) in stages. Gradually, they came to be occupied by British officers to travel and stay in remote parts of India..

Superb stuff from LHI ahain…


100th anniversary of Mysore Sandal Soap..

December 17, 2018

Live History India has another fascinating piece which has a bit of everything.

It is a classic case of creating opportunities during crisis. During WW-I ,Mysore’s sandalwood exports dried. This prompted the Maharaja to make sandalwood oil indigenously within Mysore. A foreigner gifting Sandalwood soap in 1918 to the Maharaja gave the idea for making the soap.

Keep them coming LHI..


Using RCTs to Estimate Long-Run Impacts in Development Economics

December 17, 2018

Review paper on RCTs by Adrien Bouguen, Yue Huang, Michael Kremer, and Edward Miguel:

We assess evidence from randomized control trials (RCTs) on long-run economic productivity and living standards in poor countries. We first document that several studies estimate large positive long-run impacts, but that relatively few existing RCTs have been evaluated over the long-run. We next present evidence from a systematic survey of existing RCTs, with a focus on cash transfer and child health programs, and show that a meaningful subset can realistically be evaluated for long-run effects.

We discuss ways to bridge the gap between the burgeoning number of development RCTs and the limited number that have been followed up to date, including through new panel (longitudinal) data, improved participant tracking methods, alternative research designs, and access to administrative, remote sensing, and cell phone data.

We conclude that the rise of development economics RCTs since roughly 2000 provides a novel opportunity to generate high-quality evidence on the long-run drivers of living standards.


RBI Governors And The IAS: A Long History

December 17, 2018

My debut piece with Bloomberg Quint. I look at this long history of IAS officers at helm of RBI. Of the 25 Governors in RBI’s history, 12 have been IAS officers including the recent appointee.

Some more trivia not there in the article:

  • IAS have occupied 60% of total days of RBI Governorship since 1935.
  • The average tenure of IAS officer is 4.5 years almost double that of other professions which stands at 2.6 years.
  • Within other professions, number of economists who have been Governors is 7. Their average tenure is 3.3 years. If we exclude Mr BN Adarkar who was the first economist at the helm but had a tenure of just 42 days, the average tenure improves to 3.9 years.
  • Post-1990 we have had 8 Governors, split equally between 4 economists and 4 IAS. The average tenure of IAS and Economist is also split at 4 years.



Post-Demonetisation patterns of deposits: a State-wise analysis

December 14, 2018

Nice bit of research by Tarun Kumar Saxena and Thoppil Bhargavan Sreejith of RBI.  It features in RBI’s monthly bulletin of Dec 2018.

The paper says deposits rose during demonetisation in most states and now people prefer savings deposits compared to term deposits. In terms of cash usage, only two states – Sikkim and Telangana – show a decline in its usage:

Shifts in ownership and tenor of deposits provide valuable insights into payment habits, saving propensities and liquidity preferences. This article has the vantage position of studying these patterns under the impact of a shock – in this case, demonetisation – and its backwash. This event appears to have produced a permanent shift in deposit behaviour with households’ preference shifting to savings deposits and away from term deposits. This suggests a premium on liquidity induced by the shock, partly incentivised by lower rates of returns on term deposits and alternative avenues of saving which combine the benefits of liquidity and returns. While the withdrawal of SBNs caused a shift in payment habits away from cash, this has proven to be short-lived and mean reversion became evident in 2017-18 itself. Only two states show a break from the central tendency, with a decline in cash dependency.

The results presented in this article draw from a census. They point to the fact that deposit and payment habits are inflexible across most states/ UTs in India and tend to return to steady state, even after large shocks. This has implications for banks’ deposit mobilisation strategies and business models.

Lots of tables and colorful graphs. One is noting RBI’s research bulletins is beginning to feature interesting research pieces. Keep up the tempo!

History of Bangladesh Currency (Taka) is really interesting and worth researching…

December 13, 2018

Came across this article on an exhibition on Bangladesh history organised by the Bangladesh Deputy High Commission, Karachi.

The section comprising banknotes was also well-appreciated; Bangladesh Bank over the years has been changing the design of the banknotes in different denominations. Taka one first issued in 1973 had a typical Bengali woman pounding rice on one side of the note. Commemorative notes of 100 years of Bangladesh National Museum 1913-2013 were also displayed.

This got me thinking. After all, Bangladesh as East Pakistan shared its currency with West Pakistan. There were two branches of State Bank of Pakistan as mentioned in history of Bangladesh central bank:


The role of transaction costs in Douglass North’s understanding of economic history

December 13, 2018

Nice paper by Rosolino Candela of George Mason University:

The purpose of this chapter is an attempt to reconstruct the evolution of North’s approach to understanding economic history. Underlying this evolution has been an increasing recognition of the role that transaction costs play in explaining the economic performance of different societies through time. I argue that, as a by-product of North’s emphasis on transaction costs throughout his scholarship, he transitioned from a neoclassical to an Austrian understanding of the process of economic change.

The implications of North’s growing emphasis on transactions costs throughout his career was a growing importance of other complementary features of economic theory, shared by Austrians, to explain processes of institutional change throughout economic history. These features of Austrian economic theory include: methodological subjectivism; competition and discovery under uncertainty; a dynamic conception of learning through time; and the role of ideology in structuring the patterns of meaning and purpose attached to human action.


We should have institutionalised RBI autonomy (with accountability) and not its frictions with government

December 13, 2018

My new piece in moneycontrol..

Slovak central bank Governor resigns early and its finance minister expresses interest in the job…

December 12, 2018

As Urjit Patel resigned on 10 Dec 2018, another central banker gave up the job a fortnight ago on 27 Nov 2018.

This was Jozef Makúch, the Governor of Slovakia Central Bank. He took the decision in the Board meeting (ironically):

The Bank Board of Národná banka Slovenska today (27 November) held its 22nd meeting of 2018, chaired by Jozef Makúch, the NBS Governor.

In accordance with Article 7(8)(b) of Act No 566/1992 Coll. on Národná banka Slovenska (the NBS Act), as amended, Mr Makúch submitted to the Bank Board his notification of resignation from the position of Governor of Národná banka Slovenska with effect from the end of 1 March 2019 or, if later than that date, the end of the day before the effective date of the appointment of the next Governor of Národná banka Slovenska, until which date he will continue to hold the position and perform the duties of NBS Governor pursuant to the NBS Act.

Like Urjit, Makuch was slated to retire later in March 2021.

Apparently as Makuch chose to retire, finance minister Kazimir expressed interest in running the central bank:

 Finance Minister Peter Kazimir said on Tuesday he would run for the post of Central Bank governor to replace Jozef Makuch, who announced his early departure on Tuesday.

Kazimir, 50, finance minister in centre-left governments since 2012, has often taken a tough line similar to that of Germany on euro zone policies toward countries that fail to meet their fiscal commitments.  He has been a loyal ally of the Smer party chief Robert Fico, but has also won praise for narrowing the public finance deficit, aimed to fall to zero next year, despite the government’s welfare spending.

Critics, including Slovakia’s main fiscal watchdog, say he could have used strong economic growth, underpinned by a booming car sector, to push for a faster consolidation of public finances.

Kazimir first joined politics when he became deputy finance minister in 2006-2010, overseeing the country’s accession to the euro zone in January 2009. Viewed as a pragmatic technocrat in Slovakia, he first sought to leave party politics last year when he unsuccessfully ran for chairman of the EU’s single currency club, the Eurogroup.

The Slovak central bank governorship job came for grabs earlier on Tuesday when Makuch said he would quit as of March next year, ahead of the end of his mandate in January 2021. The decision was not a shock as Makuch had said in September he was considering an early departure.

Not very different from the saga in India. Here too, we see a former bureaucrat from Finance Ministry taking up the job. Not the finance minister but as close as it can get…

Urjit Patel’s resignation: its implications, controversial tenure, return of IAS to RBI and much more

December 12, 2018

Lots of columns being written.

Will try keep adding to the list…

RBI Governor Urjit Patel resigns..

December 10, 2018

Well, well, well.

This has come from nowhere:

On account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honour to serve in the Reserve Bank of India in various capacities over the years. The support and hard work of RBI staff, officers and management has been the proximate driver of the Bank’s considerable accomplishments in recent years. I take this opportunity to express gratitude to my colleagues and Directors of the RBI Central Board, and wish them all the best for the future.

Urjit R. Patel

10th December 2018

Really terrible and sad the way events have been folding in the last few days…

The importance of reading annual reports in company valuation

December 10, 2018

Vikas Vardhan Senior Equity Analyst at Value Research Stock Advisor posts on the importance of reading and figuring annual reports.

After all there is this famous Buffet quote:

‘Other guys read Playboy, I read annual reports,’ said Warren Buffett in an interview when asked about how he discovered and got conviction in PetroChina, one of his best investments, which yielded more then 50 per cent over five years…..


If you are a cricket enthusiast, you can surely make out the difference between a T20 and a test-match commentary. A T20 match commentary gives a ball-by-ball description of the shots played and the runs scored. On the contrary, a test-match commentary is slightly slow-paced and discusses the strategy of players and the teams, how they played in the last match, their future potential, etc. While a T20 commentary reminds us of quarterly results, test matches are the equivalent of companies’ annual reports.

Like T20 matches, quarterly results are more glamorous and attract attention in the market, while the release of annual reports is not celebrated, though they are equally, if not more, important as quarterly results. Going through an annual report should be an inherent part of the investment process and merely relying on quarterly results may lead to missing out on important information.

Annual reports are one of the most reliable sources to gather company-specific information in an exhaustive manner. Ideally, annual reports serve two purposes. First, they help generate ideas and take investment actions and, second, they help identify red flags and early signs of trouble when everything seems to be going well. To summarise, annual reports act like an anchor to your investment decision.

He also tells us how and what to read in the indiv sections of the annual report.

A good and important post..

Figuring the roots of French “Yellow Vest” movement…

December 10, 2018

Olivier Blanchard on the yellow vest movement.

He says one has to go back in history to figure the roots of this movement:

…with the end of communism, it became clear that there was no alternative, only a muddle between market intervention and free markets. So long as growth was strong, and all boats were indeed lifted, the problem was manageable. Then growth slowed down, and inequality and insecurity became more salient, with no simple solution in sight.

The center-right and center-left parties tried their best to manage, but their efforts were not good enough. Sarkozy tried reforms but failed. Hollande, his successor, had a more realistic agenda but did not achieve much. Unemployment remained high and taxes increased. People increasingly felt that the traditional parties did not improve their lot, nor did they represent them.

Then came Macron, who correctly pointed out that the left/right distinction did not make much sense anymore, and he won by occupying the large middle. In doing so, he tore the traditional center left and right parties to pieces, leaving only the extreme right and the extreme left as alternatives.

In the process, he may have made the political system worse. As the economy has not improved much yet, people, unhappy with the lack of results, do not have the traditional parties to turn to. Some have joined the extreme left or the extreme right. More have become skeptical of any representation, be it parties or unions, and have taken to the streets. Thus the gilets jaunes was born, a spontaneous and unorganized response, a form of direct democracy.

But unorganized direct democracy does not work. In a country of 65 million people, ancient Athens’ agora-style democracy cannot work. We have seen this in the last three weeks. There is no coherent voice or message emerging from the movement: The state cannot provide more public services and simultaneously lower taxes. In the streets, the movement cannot avoid being hijacked, to its dismay, by anarchists or vandals. It is going nowhere.

The challenge to the government and the political class is immense. If I am right, the sources of the problem are old and deep. The government must convince people that it is hearing them, while making clear that it cannot deliver the impossible. And the opposition must avoid playing with fire: Unorganized anger can lead to chaos.

Interesting bit..

Nobel Prize 2018 lectures

December 10, 2018

The lectures are up on the Nobel website:

  1. People must understand the gravity of global warming. This involves intensive research and resisting false and tendentious reasoning.
    2. Nations must raise the price of CO2 and other greenhouse-gas emissions.
    3. Policies must be global and not just national or local. The best hope for effective coordination is a climate club.
    4. Rapid technological change in the energy sector is essential.


Changing the way we teach monetary policy…

December 10, 2018

Øistein Røisland and Tommy Sveen of Norges Bank write this nice paper:

Monetary policy plays a central role in modern macroeconomics and many countries around the world has adopted inflation targeting as a guideline for policy. We emphasize and explain policy goals and then we assume that the central bank sets interest rates to ensure that these goals are met. We start with a simple model for a closed economy, where we briefly also discuss financial stability. We then expand the model and consider open economies. We develop the analytical results, but we focus on graphical discussions. Effects of various disturbances are analyzed using comparative statics.

They argue how traditional ISLM curve and its later variants hardly refer to the real world. We should instead start with policy goals of the central bank and assume central banks set interest rates to achieve these goals. Moreover, we also need to include financial stability and open economy considerations.


The history of South India is relatively unknown: Rajmohan Gandhi

December 10, 2018

A new book on South India by Rajmohan Gandhi.

In this article, he says (and rightly so) that we know very little about Southern India history:

Billed as “a masterpiece in every sense of the word”, Rajmohan Gandhi’s upcoming book “Modern South India” is promoted by its publisher as an authoritative and magnificent work of history about that will be read and reflected upon for years to come.

“The sounds and flavours of the land south of the Vindhyas — temple bells, coffee and jasmine, coconut and tamarind, delicious dosais and appams — are familiar to many, but its history is relatively unknown,” Gandhi writes in the 500-page book that traces the history of from the 17th century to current times.

But why this historical amnesia?

“For one thing, the South is a large area, where, dauntingly, a great deal happened during the 400 years covered in my study. Secondly, while the story of each powerful culture within the South has been studied in depth, few in either the South or the North have attempted an integrated view of the South as a whole. Thirdly, India’s political power has resided in the North, influencing the focus of academia, not merely the media,” the grandson of Mahatma Gandhi, who has taught political science and history at two IITs, and the University of Illinois, where he currently serves a research professor, told IANS in an email interview.

But is not the only major region suffering from neglect, Gandhi maintained, and asked: “Do we have many histories of western or 

He pointed out that the Maratha history is rich, so is the history of Bengal, and likewise the histories of Assam, Odisha and Gujarat, but there is a case for broader histories of western and 

“Yet the expression ‘South Indian’ conjures up images hardly matched by phrases like ‘East Indian’ or ‘West Indian’, which Indians never use. In places in the US, an ‘East Indian’ is an Indian from India, different from a native American, while ‘West Indian’ suggests the West Indies,” he said.

In the book, Gandhi tells the story of four powerful cultures — Kannada, Malayalam, Tamil and Telugu — as well as the cultures Kodava, Konkani, Marathi, Oriya, Tulu and indigenous that have influenced them. Asked if there was a common thread that binds them all together, he pointed to three elements.

One geographical and the other linguistic, have given the its unity and distinctiveness. Because of the and the Bay of Bengal, European countries like Portugal, Holland, England and impacted the South in ways not experienced by northern and  Secondly, the South’s major languages have Dravidian rather than Sanskritic roots, even though their vocabularies have been enriched by borrowings from Sanskrit and elsewhere. Thirdly, the Dravidian/Aryan question resonates, not necessarily divisively, in many southern minds,” he shared.

Not just general history. But even Southern economic, banking and business history is relatively unknown and unexplored/

More  here:

Should be an immediate pick and read…

How economy and banking differs in western US compared to eastern US?

December 10, 2018

Interesting speech by Randal Quarles, Vice Chairman for Supervision at Federal Reserve.

We all know that throughout the history of the West, banking and finance have played an important role as vital infrastructure for the economy. That remains true today, although it is often overlooked in the traditional litany of issues critical to the West. A strong banking industry is necessary for households and businesses to engage in the spending, saving, and investment that constitute economic activity, and one of the purposes of financial regulation is to ensure that banks continue to be able to serve this purpose. So it is my plan today to talk about the economy of the West and link the recent and future performance of the western economy to the central and supportive role banks play as vital infrastructure in their communities.

But what is Western US?


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