Archive for April 16th, 2019

Marrakesh milestone: 25th anniversary of the WTO’s founding agreements

April 16, 2019

From WTO (an institution which is barely discussed):

Twenty-five years ago, on 15 April 1994, representatives from more than 120 nations gathered in Marrakesh, Morocco, to sign what was described at the time as the “greatest trade agreement in history”, one which led to the establishment of the WTO and created a new global framework for liberalizing trade in goods and services, protecting intellectual property rights, and easing trade tensions through a new dispute resolution mechanism.

The texts signed in Marrakesh on that day were the result of the 1986-94 Uruguay Round negotiations, an unprecedented endeavour in international trade which produced more than 60 agreements and decisions totalling 550 pages – making it one of the largest treaties ever signed. The signing took place at a meeting of trade ministers to the General Agreement on Tariffs and Trade (GATT) and led to the transformation of the GATT into the WTO.

The WTO’s creation on 1 January 1995 marked the biggest reform of international trade since after the Second World War. It also brought to reality — in an updated form — the failed attempt in 1948 to create an International Trade Organization.  Today the WTO has 164 members accounting for 98% of world trade.

“The agreements you will sign here this week mean opportunities to expand trade, economic growth and employment,” declared Peter Sutherland, the last GATT Director-General and the WTO’s first Director-General, at the opening of the Marrakesh meeting. “They mean opportunities to promote sustainable development.  And they also mean an opportunity – the most significant one we have had for fifty years – to build a new basis for global economic cooperation.” His full speech is available here.

Good to note this…

Advertisements

Monetary Policy Transmission in Financial Markets: Evidence from India

April 16, 2019

Edwin Prabu (of RBI) and Prof Partha Ray  in this EPW paper:

In the Indian context, a key question is addressed: What has been the influence of monetary policy on different segments of the financial markets? Constructing a structural vector autoregressive model with the monetary policy rate, the pattern of monetary transmission to financial markets is examined over three distinct periods of regime changes in the Indian monetary policy and liquidity management framework. The empirical evidence indicates that there is sufficient period-specific transmission of monetary policy across the different segments of the financial markets. While the transmission of monetary policy to the money and bond markets is found to be fast and efficient, the impact of the policy rates on the forex and stock markets is limited.

Policy implications:

Monetary transmission is often implicitly seen to be a two-stage process whereby in the first stage monetary policy affects the different segments of the financial markets, and in the second stage, the impact of the financial markets gets transmitted to the real sector of the economy. The present paper looks into the first stage of this process.

Our results indicate that the impact not only varies across different segments of the financial markets, but it is also sensitive to the operating procedure of the monetary policy. Expectedly, our results find the primacy of the call rate in the money markets and are in consonance with the official RBI stance of treating the weighted average of overnight call money rate as the operating target of monetary policy. In particular, there is differentiation in the monetary policy transmission to the financial markets in India, being faster and persistent for the call and bond markets, to the least impactful for the forex and stock markets.

As far as the periodicity the transmission is concerned, in the first period (April 2005 to April 2011), the positive shock to the repo rate did not have any impact on the call money, while in both the second (May 2011 to June 2016, when the liquidity framework was fine-tuned with a clear operating target and introduction of term repo) and the third (July 2016 to December 2018, following the introduction of flexible inflation targeting) periods it was found to be quite high.

As already indicated, these impacts are the first stage impacts of monetary policy on financial markets. As is well known, monetary policy works through the Wall Street but wants to influence the Main Street ultimately. How can we link this story of financial markets to the real sector? This question remains unanswered in this paper and constitutes the agenda for further research.

 

Lessons from the Greek crisis – past, present, future

April 16, 2019

Mr Yannis Stournaras, Governor of the Bank of Greece, looks at the lessons from Greek crisis:

Despite some missteps and delays and political resistance to the implementation of the required reforms, Greece has made notable progress since the start of the crisis in 2010. The implementation of a bold economic adjustment programme has eliminated several macroeconomic imbalances. Moreover, the economy is now recovering and has started to rebalance towards the tradable, export-oriented sectors. Nevertheless, significant challenges and crisis-related legacies remain (e.g. a high public debt ratio, a high NPL ratio, and high long-term unemployment), while the brain drain and underinvestment weigh on the long-term growth potential. To address these challenges, emphasis must now be placed on implementing the reforms described above. These reforms would facilitate the sustainable return of the Greek State to the international government bond markets and the rebalancing of the economy towards a knowledge-based and export-led growth model.

Finally, it is high time to take bold steps towards the completion of EMU, promoting greater political solidarity and fostering private and public risk-sharing. The next crisis should not find us unprepared and we should not rely solely on the ECB’s monetary policy to deal with it.

 

History of Federal Reserve: Interviews of former policymakers and senior staff

April 16, 2019

Amazing initiative by Federal Reserve:

The Federal Reserve Board on Friday published transcripts of more than 50 interviews with former policymakers and former senior staff that chronicle nearly half a century of Federal Reserve history.

The interviews, including with former chairs Paul A. Volcker, Alan Greenspan, and Janet L. Yellen, provide personal recollections of important economic, monetary policy, and regulatory developments. They also provide impressions of life and culture at the Federal Reserve Board.

Read the interviews here. One could do a macro course on these interviews..


%d bloggers like this: