Archive for April, 2019

Course on detection of academic bullshit..

April 19, 2019

Ananth Nageswaran in this post tells us about this course which helps detect academic bullshit.

The world is awash in bullshit. Politicians are unconstrained by facts. Science is conducted by press release. Higher education rewards bullshit over analytic thought. Startup culture elevates bullshit to high art. Advertisers wink conspiratorially and invite us to join them in seeing through all the bullshit — and take advantage of our lowered guard to bombard us with bullshit of the second order. The majority of administrative activity, whether in private business or the public sphere, seems to be little more than a sophisticated exercise in the combinatorial reassembly of bullshit.

We’re sick of it. It’s time to do something, and as educators, one constructive thing we know how to do is to teach people. So, the aim of this course is to help students navigate the bullshit-rich modern environment by identifying bullshit, seeing through it, and combating it with effective analysis and argument.

What do we mean, exactly, by bullshit and calling bullshit? As a first approximation:

Bullshit involves language, statistical figures, data graphics, and other forms of presentation intended to persuade by impressing and overwhelming a reader or listener, with a blatant disregard for truth and logical coherence.

Calling bullshit is a performative utterance, a speech act in which one publicly repudiates something objectionable. The scope of targets is broader than bullshit alone. You can call bullshit on bullshit, but you can also call bullshit on lies, treachery, trickery, or injustice.

In this course we will teach you how to spot the former and effectively perform the latter.

While bullshit may reach its apogee in the political domain, this is not a course on political bullshit. Instead, we will focus on bullshit that comes clad in the trappings of scholarly discourse. Traditionally, such highbrow nonsense has come couched in big words and fancy rhetoric, but more and more we see it presented instead in the guise of big data and fancy algorithms — and these quantitative, statistical, and computational forms of bullshit are those that we will be addressing in the present course.

Of course an advertisement is trying to sell you something, but do you know whether the TED talk you watched last night is also bullshit — and if so, can you explain why? Can you see the problem with the latest New York Times or Washington Post article fawning over some startup’s big data analytics? Can you tell when a clinical trial reported in the New England Journal or JAMA is trustworthy, and when it is just a veiled press release for some big pharma company?

Our aim in this course is to teach you how to think critically about the data and models that constitute evidence in the social and natural sciences.

Carl T. Bergstrom and Jevin West
Seattle, WA.



What explains India’s farm distress? Demand or Supply?

April 19, 2019

Hrish Damodaran had earlier written a piece on how India was suffering from an oversupply in case of food supplies leading to decline in prices. This was used to explain the current distress in farm not just by Harish but several others.

Rosan Kishore in HT provides a rebuttal to the narrative. He says it is not a case of oversupply but of decline in demand. This is just like Keynes arguing his case for Great Depression as well!:

In an article published in The Indian Express on 18 April, Harish Damodaran has argued that “production glut, not dearth of cold storage and processing infrastructure, is the real cause of farm distress (in India) today”. The argument, if true, has serious ramifications for Indian agriculture. This is because it suggests that the only way to deal with farm distress is to reduce agricultural production in the country.

This is an interesting argument, but does it have a macroeconomic justification? The article cites problems of potato and sugar cane farmers in some districts of Uttar Pradesh, but such anecdotal evidence may not warrant the radical inference. Indeed, such an argument focuses almost entirely on supply side factors without looking at demand side issues. And two, it does not recognise the fundamental asymmetry which characterizes global agricultural markets.

Whether or not a particular commodity is in excess supply in a market also depends on the level of demand for it, which is a function of many things including purchasing power and preferences. For example, if all billionaires were to vanish from the world tomorrow, we would suddenly have a glut of private jets. Similarly, if the number of billionaires suddenly doubled in six months, there would be a severe scarcity for these jets. Both of these situations can arise without any change in the supply of private jets in the world.

What many commentators do not realise is that demand for food also varies drastically among countries. This becomes clear by a comparison using the data published by the Food and Agricultural Organisation (FAO). The relevant category to look at in the FAO database is per capita supply of food items.

India is nowhere close to reaching peak food consumption levels in the world. This (price crash for food items) could have happened if mass purchasing powers have come under squeeze in the recent period. Unfortunately, there is no consumption expenditure data to accept or reject this claim. The recently leaked findings of the National Sample Survey Office (NSSO) employment survey did suggest that the Indian economy has fared badly on the employment front. If these findings are true, there is bound to have been a negative impact on mass purchasing powers. To be sure, farm incomes have also suffered in India due to the adverse turn in international food prices, which have brought down export opportunities and earnings and also created problems for crops such as sugar cane.

Also, agrarian distress is not something which has suddenly appeared in India in the past couple of years. Viability of the average Indian farmer has been in crisis for a long time now. What many people do not realise is that this is not a problem which is unique to India. Even in a country like the US, where farming is extremely mechanised and practiced on very large farms, prices cannot cover the cost of production for important crops such as wheat and cotton. Statistics from the United States Department of Agriculture show that the difference between value of output and total costs has been continuously negative in the US.


RBI’s MPC member also supports rate changes other than in multiples of 25 bps..

April 19, 2019

RBI Governor Shaktikanta Das created interest and debates over why central banks need to change policy rates in multiples of 25 bps.

SK Ghosh of SBI pointed to evidence from China where rates were changed in non-multiples of 25 bps.

Further, in RBI MPC minutes of meeting held on 7-Apr-2019 were released yday. One of the members, Prof Ravindra Dholakia said:

As per the mandate given to the MPC, under such circumstances, we need to give a sustained boost to the economy. I, therefore, vote for a change of stance from neutral to accommodative with a 25 bps cut in the policy repo rate, though I would have preferred to cut it by 35-40 bps this time.

The discussions seem to have started in the MPC itself…

Prof Dholakia also calls core inflation as ‘so-called’:

I have been consistently arguing that unless the real growth exceeds 8-8.5 percent per annum, the output gap reflecting the unemployment gap in the economy is not likely to close. Till that point, there would be downward pressure on the labour market and market determined wages and thereby on the so-called ‘core’ inflation.



Ireland establishes a Bank Culture Board

April 19, 2019

In my earlier article in Moneycontrol, I argued how culture in banking or lack of it has become one of the key agendas for central bankers. I had pointed how Ireland is one of the main countries looking to do something about improving culture in its banks.

Taking the agenda forward, the they have set up a Irish Banking Culture Board (IBCB) :


Evolution of Fed’s inflation target from 1.5% to 2%..

April 19, 2019

Adam Shapiro and Daniel J. Wilson of San Francisco Fed in this research trace the numerical value of Fed’s inflation target:

A narrative analysis of the historical FOMC meeting transcripts indicates that FOMC participants generally expressed a preference for an inflation target around 1½% from 2000 to around 2007. By the end of the Great Recession in 2009, however, the consensus had clearly shifted to 2%. This became the official target announced to the public in 2012. One plausible explanation for this shift is that hitting the zero lower bound in a low inflation environment brought the potential benefits of a higher inflation target to the forefront. As many academic studies and even FOMC participants have discussed, a higher inflation target could potentially lower the risk of hitting the zero lower bound in future recessions.

We also found that actual inflation from 2000 to 2007 was considerably above the 1½% consensus preferred target. Does this imply the FOMC failed in meeting its objectives during this period? Not necessarily. First, while FOMC participants may explicitly state in private their preferred rate of inflation, the committee’s monetary policy actions may be consistent with a different target. Second, the FOMC’s objectives may have included higher economic growth in addition to having inflation near its target, as found in Shapiro and Wilson (2019). With such multiple objectives, achieving higher growth over a given period could involve some trade-off with inflation being above target.

When and who mentioned inflation target first?

Discussions of explicit inflation targeting did not begin to appear in the FOMC meetings until around 1994. Before then, FOMC participants occasionally mentioned an objective of “price stability” without relating that to an explicit inflation target. One illuminating exception was a statement by Federal Reserve Board Governor David Mullins in the November 1993 meeting that suggested an implicit target moving below 3% by that time: “I think there’s a real payoff not just from stabilizing inflation in the 3–4% range but in moving lower.”

The first serious consideration of an explicit inflation target we could find comes from St. Louis Fed President Thomas Meltzer in 1994. At the July meeting that year, he said, “If we don’t make an explicit statement in this FOMC testimony with respect to our long-run expectations on inflation that goes beyond ‘we think price stability is good,’ and get more specific in terms of a target range, then at the very least I think we have to make it clear that we consider 3% inflation to be unacceptable.” A few meetings later, in November 1994, he stated: “I feel that it may be time for us to consider setting a specific inflation target that looks out into the future. I think, and this point was made as well, that it could make our job considerably easier in circumstances like the present—with upward cyclical inflationary pressures—if people were willing to look out to a longer-range target and that added to credibility.”


Argentina’s high inflation leads people to bitcoins ….

April 18, 2019

Interesting bit of news:

Argentina’s economy suffers from chronic inflation to such an extent that no monetary measure seems to work. According to the Financial Times,

Argentina is trapped in a vicious circle. Demand of just a few million dollars in an illiquid market can weaken the peso, as has been the case since early March. Exchange rate depreciation leads quickly to increases in inflation, portfolio dollarization, and higher interest rates — now the central bank’s only means of defending the currency.

The fact that Bitcoin is inflation-resistant makes it particularly attractive in this environment.
Consequently, many see Bitcoin as a potential alternative. They are advocating, even to the government, greater integration of the cryptocurrency into Argentina’s economy.

Bitcoin has already become integrated into many business activities. For instance, in 37 cities, public transportation users are indirectly using Bitcoin to pay for their rides, while Bitcoin ATMs are becoming more conspicuous in Buenos Aires.

Most relevant, President Mauricio Macri’s administration has already shown interest in Bitcoin and, its underlying technology, blockchain. For example, in March 2019, the government announced a partnership with Binance Labs, the blockchain technology incubator of Bitcoin exchange giant Binance. At the announcement, the government promised to match 1:1 Binance investment.

This would surely please Satoshi Nakamoto!

Learning about Federal Reserve via comics…

April 18, 2019

Interestingly, New York Fed had started comics in 1950s itself:

The New York Fed’s Educational Comic Book Series teaches students about basic economic principles and the Federal Reserve’s role in the financial system.

Created for students at the middle school, high school, and introductory college levels, the series can help stimulate their curiosity and raise their awareness of careers in economics and finance. In addition, lesson plans created for each comic book meet national and state standards for New York, New Jersey, and Connecticut.

The New York Fed has published comic books since the 1950s and is reintroducing this popular series with a modern spin. While the comic books are intended for a student audience, they are also available to the public.

There are three comics:

The Story of Monetary Policy: This comic books illustrates the importance of monetary policy and the Federal Reserve’s key responsibilities through a tour of planets that need guidance in stabilizing prices, increasing employment, and developing a healthy economy.
The Story of the Federal Reserve System: This comic book explains the Federal Reserve’s structure and key responsibilities through the story of the citizens on Planet Novus as they work to develop their own stable economy.
Once upon a Dime: This comic book tells the story of the growing economy on Planet Novus and focuses on the concepts of barter, currency, and banking.

Will Vijaya Bank merger sway electoral results in Dakshin Kannada?

April 18, 2019

The Central government ignored the protests of people of Dakshin Kannada over merger of “their Vijaya Bank” with Bank of Baroda.

Vikram Gopal reports that the ruling party will face ire of the Bunt community of the region, which formed Vijaya Bank :

In the village of Machina, about 50km from the city, a fresh coat of plaster on the board outside a Vijaya Bank branch announces that it will henceforth be called Bank of Baroda. Resident H Subbayya Shetty says it is hard to digest the fact that the bank he worked in for 34 years is losing its identity. Shetty began his career as a clerk and retired as the managing director of the bank’s housing finance department. He was also leader of Vijaya Bank employees’ union.

Over its 88-year history, the bank came to symbolise the pride of the Bunt community, starting from the pre-Independence days. In the 1970s, when the community’s lands were redistributed to tillers as part of land reforms, the bank helped the Bunts transition out of the agrarian economy.

The government mandated a merger of the public sector Vijaya Bank and Dena Bank with Bank of Baroda on April 1, to create a more competitive financial institution. It has now turned into an emotive community pride issue in coastal Karnataka — where five of India’s prominent banks were founded in the first half of the 20th century, a fact acknowledged by Prime Minister Narendra Modi at a recent rally here.

Protests were held in the region condemning the merger. The Congress is trying to cash in on the issue in Dakshina Kannada, a seat that has been the stronghold of the Bharatiya Janata Party since 1991 and which will go to the polls on Thursday, along with 13 other Lok Sabha constituencies in the state. Congress candidate, Mithun Rai, is a member of the Bunt community as is the sitting BJP MP Nalin Kumar Kateel.

Rai says the issue is important because the community feels a sense of loss. Kateel, in turn, argues that the merger was initiated by the previous United Progressive Alliance (UPA) government led by the Congress.

A major chunk of the community has supported the BJP over the past three decades, said Vijay Prasad Alva, secretary of the Federation of Bunts Associations. However, this time around there was disenchantment against two-time winner Kateel, because of his failure on this front. “Kateel should have tried to put forward the community’s concerns on the matter,” Alva said. This though would not automatically translate into support for the Congress, Alva said, because the disenchantment was against the political class as a whole.


The merger has been challenged legally with petitions pending before the Supreme Court. Dinesh Hegde Ulepady, a lawyer involved in the case, said the merger felt cruel “because the Bank of Baroda and Dena Bank were making losses and Vijaya Bank was turning in a profit”.

However, the real letdown, according to Ulepady, was the apathetic attitude of the major political parties. “It is not enough to hold symbolic protests,” he said, adding that there are two petitions before the SC, one challenging the failure to nominate bank employees on the board, which predated the merger. “The other is a petition challenging the merger itself,” he said.

This is Dakshin Kannada region for you. As the late Dr Thingalaya explained to me, there is enormous pride in the region over their banks. There is a reason why people are so effected by this merger and loss of identity as the region’s 5 banks are their identity.

It will be interesting to see the election results in this region. After all it is perhaps a unique moment in banking history that it could influence election results too…


Real effective exchange rates (REER) should incorporate Global Value Chains

April 18, 2019

Nice article by Nikhil Patel and Shang Jin Wei:

Standard calculations of the REER by most central banks and statistical agencies assume that countries export only final goods. But GVCs spread the different stages of production among different countries. They can do so thanks to technological improvements, lower trade barriers, and the closer integration of emerging markets into the global economy. Ignoring this reality can lead to substantial mismeasurement of the REER, resulting in questionable policy inferences.

To see how the standard approach could be wrong, consider a hypothetical value chain for the production of smartphones. Suppose Japan manufactures the components and ships them to China, where the phones are assembled and exported globally as finished products. Traditional REER models would assume that Japan exports final goods to China, and that the two countries are competitors. A depreciation of the Japanese yen, therefore, would help Japan’s competitiveness and hurt that of China.

In this case, however, a weaker yen would lower the price of Japanese components, which may lead to lower prices and increased demand for Chinese phones – leading to an improvementin China’s competitiveness. This example shows that the standard REER calculation is getting not only the magnitude wrong, but also the direction of change.


They also explain how adjusting for GVCs lead to Chinese Renminbi showing appreciation trend compared to the oft cited depreciation trend…

The financial sector must be at the heart of tackling climate change..

April 17, 2019

Climate change is again becoming central to policy.

Central  bank Governors of France and England have written an open letter along with Frank Elderson (Chair of the Network for Greening the Financial System):


A walk tracing the history of Kozhikode..

April 17, 2019

On World Heritage day tomorrow, a group of people are doing a walk to take through heritage of Kozhikode:

To mark World Heritage Day on Thursday, a group of heritage enthusiasts will trace the trail covering Tali, Palayam, S.M. Street and Mananchira in the city that offers an insight into the most vibrant chapters of the chequered history of Kozhikode.
Captain Ramesh Babu, project manager of the National Institute for Research and Development in Defence Shipbuilding (Nirdesh), who is leading the heritage walk, from 6.30 a.m. to 9 a.m., said that Kozhikode had a history dating back to the 8th Century, making it one of the oldest port cities on the West Coast of India.
“The city is a treasure trove of history, left behind by Porlathiri and Samoothiri kings, maritime traders from Arabia, Africa, Greece, Turkey and China; conquerors from Mysore, colonisers from Europe and many trading communities from other parts of India,” he said.
Should be fascinating. Pass on the word to those in the historic city..

Why are we so moved by the plight of the Notre Dame?

April 17, 2019

A debate on the regulatory ambit of a central bank: RBI is not alone in the battle

April 17, 2019

My new piece in Mint newspaper.

The Supreme Court recently called RBI’s circular on banking regulation as “ultra vires”. In the article, I bring insights from a recent speech by Ignazio Angeloni, Member of the Supervisory Board of the ECB. Mr Angeloni mentions that one of ECB’s proposals to increase bank capital was also questioned by European Parliament! Thus, there are parallels with Indian case. Mr Angeloni raises the debate further arguing for Supervisory independence much like monetary policy independence.

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…

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..

Why should central banks adjust policy rates by 25 bps and its multiples? Historical evidence from India and England

April 15, 2019

RBI Governor Shaktikanta Das in a recent speech challenged the status quo:

I do, however, feel that the time has come to think out of the box, including by challenging the conventional wisdom. Let me try and somewhat shock you with one such thought experiment. Typically, modern central banks with interest rates as their main instrument move in baby steps – 25 basis points or multiples thereof – and announce a stance of tightening, neutrality or accommodation to guide the markets and the public on the likely future course of policy. One thought that comes to my mind is that if the unit of 25 basis points is not sacrosanct and just a convention, monetary policy can be well served by calibrating the size of the policy rate to the dynamics of the situation and the size of the change itself can convey the stance of policy.

For instance, if easing of monetary policy is required but the central bank prefers to be cautious in its accommodation, a 10 basis points reduction in the policy rate would perhaps communicate the intent of authorities more clearly than two separate moves – one on the policy rate, wasting 15 basis points of valuable rate action to rounding off, and the other on the stance, which in a sense, binds future policy action to a pre-committed direction. Likewise, in a situation in which the central bank prefers to be accommodative but not overly so, it could announce a cut in the policy rate by 35 basis points if it has judged that the standard 25 basis points is too little, but its multiple, i.e., 50 basis points is too much.

This approach can also be useful when the central bank is on a tightening mode and potentially help avoid policy turnaround from forward guidance via stance too far into the future, which in a highly volatile global scenario, may not even be a year. I am articulating this idea not necessarily in search of a theory but in search of traction with domain experts and more particularly, with practitioner central bankers who face these dilemmas in their day-to-day lives.

This got me interested and one looked a whether central banks tweaked policy rates by other than 25, 50 or 100 bps.

RBI has this table which lists its major policy rates (see similar table in RBI’s online database for data from 1935 onwards).

  • In 1935, RBI had two policy measures: Bank rate and Cash Reserve Ratio.
  • SLR started in 1949.
  • Repo and Reverse Repo rate started in Apr-2001.

In the historical data across different policy measures/rates, we see changes only in 25,50 or 100 bps.

Next, one looked at Bank of England which has published Bank rate since 1694! Bank rate has had many avatars starting as a discounting rate to become today’s repo rate.

Apparently from 1694 to 1980, changes in Bank rate were in 25,50 or 100 bps which was perhaps copied by all other central banks later on. But from 1981 onwards, the central bank makes changes in denominations other than 25,50 or 100 bps:

1981 15.125 0.125
1981 15.0625 -0.0625
1981 14.625 -0.4375
1981 14.5625 -0.0625
1981 14.375 -0.1875
1982 14.3125 -0.0625
1982 14.25 -0.0625
1982 14.125 -0.125
1982 14 -0.125
1982 13.875 -0.125
1982 13.8125 -0.0625
1982 13.625 -0.1875
1982 13.25 -0.375
1982 13.125 -0.125
1982 13 -0.125
1982 13.125 0.125
1982 12.625 -0.5
1982 12.5 -0.125
1982 12.25 -0.25
1982 12.125 -0.125
1982 12.0625 -0.0625
1982 11.9375 -0.125
1982 11.8125 -0.125
1982 11.75 -0.0625
1982 11.625 -0.125
1982 11.5625 -0.0625
1982 11.5 -0.0625
1982 11.375 -0.125
1982 11.25 -0.125
1982 11.125 -0.125
1982 11 -0.125
1982 10.875 -0.125
1982 10.625 -0.25
1982 10.5 -0.125
1982 10.375 -0.125
1982 10.25 -0.125
1982 10.125 -0.125
1982 9.625 -0.5
1982 9.375 -0.25
1982 9.125 -0.25
1982 10 0.875
1983 11 1
1983 10.5625 -0.4375
1983 10.3125 -0.25
1983 10.0625 -0.25
1983 9.8125 -0.25
1983 9.5625 -0.25
1983 9.4375 -0.125
1983 9.5625 0.125
1983 9.0625 -0.5
1984 8.8125 -0.25
1984 8.5625 -0.25
1984 9.0625 0.5
1984 8.875 -0.1875
1984 10 1.125
1984 12 2
1984 11.5 -0.5
1984 11 -0.5
1984 10.75 -0.25
1984 10.5 -0.25
1984 10 -0.5
1984 9.75 -0.25
1984 9.5 -0.25
1985 11.875 2.375
1985 13.875 2
1985 13.375 -0.5
1985 12.875 -0.5
1985 12.375 -0.5
1985 11.875 -0.5
1985 11.375 -0.5
1986 12.375 1
1986 11.375 -1
1986 10.875 -0.5
1986 10.375 -0.5
1986 9.875 -0.5
1986 10.875 1
1987 10.375 -0.5
1987 9.875 -0.5
1987 9.375 -0.5
1987 8.875 -0.5
1987 9.875 1
1987 9.375 -0.5
1987 8.875 -0.5
1987 8.375 -0.5
1988 8.875 0.5
1988 8.375 -0.5
1988 7.875 -0.5
1988 7.375 -0.5
1988 7.875 0.5
1988 8.375 0.5
1988 8.875 0.5
1988 9.875 1
1988 10.375 0.5
1988 10.875 0.5
1988 11.875 1
1988 12.875 1
1989 13.75 0.875
1989 13.8438 0.0938
1989 13.875 0.0312
1989 13.75 -0.125
1989 14.875 1.125

Post 1989, once again changes were in 25,50 or 100 barring in 1996 and 1997 when Bank rate was changed by -0.1875 bps and 0.3125 bps respectively.

It will be interesting to go back in history and figure how 25,50 and 100 bps became the main way to change policy rates. Perhaps the discussion is buried in Bank of England history somewhere from where it spread to rest of the world.  Like my good friend Avinash Tripathi said, this must have been done to keep the uncertainty low. One just had to figure the direction of interest rate changes and it was bound to be in 25,50 or 100 bps. With interest rate changing in all possible denominations, things would have been far more uncertain.


The Fault in R-Star: Has the natural rate of interest lost its luster as a navigation aid for monetary policy?

April 15, 2019

Tim Sablik of Richmond Fed reflects on Rstar in this piece:

In a sense, the Fed’s view on r-star hasn’t changed. Early in the recovery, policymakers used it to help explain why interest rates were low and why they were likely to remain low for some time. But they were always careful to communicate the uncertainty surrounding r-star. As the federal funds rate has risen and that uncertainty has become more relevant, the Fed’s communications have reflected that heightened concern. One thing has changed in the last decade, though. The renewed interest in r-star has spawned more efforts to better estimate and understand it.

“Multiple Reserve Banks are now contributing to the effort to measure r-star,” says Lubik. “Some estimates are on the high end and some are on the low end, but together they provide a good assessment of the most likely value for r-star under a variety of assumptions and methodologies.”

The Fed is making use of these and other data to gain a better picture of the economy while it shifts monetary policy into neutral. At the FOMC’s September 2018 meeting following Powell’s Jackson Hole speech, participants noted that “estimates of the level of the neutral federal funds rate would be only one among many factors that the Committee would consider in making its policy decisions,” according to the meeting’s minutes.

R-star has become an important tool in the Fed’s kit following the Great Recession, but it should not come as a surprise to see its fortunes wax and wane as economic conditions change over time. It’s a rare kind of navigational aid, one that becomes blurrier as it gets closer.


Will countercyclical capital buffers help in the next crisis?

April 12, 2019

My new piece in moneycontrol.

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