Archive for June 3rd, 2019

RBI’s financial literacy week: 3 June – 7 June 2019

June 3, 2019

This week, RBI is promoting Financial Literacy to farmers:

The Financial Literacy Week is an initiative of RBI to promote awareness on key topics every year through a focused campaign. Financial Literacy Week 2019 will be observed from June 3-7 on the theme of “Farmers” and how they benefit by being a part of the formal banking system.

Growth in agriculture is necessary for the overall economic growth & finance is an essential enabler for the same. RBI is actively involved in formulating policies that enhance the flow of credit to the farming community. In recent years, the Bank has undertaken several initiatives to strengthen credit delivery mechanism and financial inclusion.

In order to build awareness and disseminate financial literacy messages to the farming community, focused content in the form of posters and leaflets have been prepared for dissemination. Banks have been advised to display the posters and content in their rural bank branches, Financial Literacy Centers, ATMs and websites. Further, RBI will undertake a centralized mass media campaign during the month of June on Doordarshan and All India Radio to disseminate essential financial awareness messages to farmers.

It is RBI’s endeavour to reach out to the farming community and all stakeholders are requested to co-ordinate and make this financial literacy campaign a success.


Did RBI’s inflation targeting framework tame the inflation lion…

June 3, 2019

Post-election results, time to get back to economics.

There are debates on whether RBI needs to revisit its inflation targeting framework. Moreover, did the IT framework tame the inflation lion (or slayed the inflation dragon, take your pick).

This Mint piece argues the framework was a rip roaring success. Another CNBC-TV18 piece says we cannot be sure and asks for a open debate on the topic. It quotes this example:

CPI inflation has come down sharply from 8.60 percent when the current framework was suggested in January 2014, to 2.92 percent now. Should we not give some credit to the framework?

Here is a classic trap that my old professor warned of. Whiskey and soda intoxicate John, gin and soda intoxicate John, vodka and soda intoxicate John, ergo, soda intoxicates John.

As a parallel, low food prices and the framework brought down inflation, low crude oil prices and the framework brought down inflation, favorable external context and the framework brought down inflation, therefore, has the framework brought down inflation?



The Macroeconomics of the Greek Depression: Would devaluation have helped

June 3, 2019

Gabriel Chodorow-Reich, Loukas Karabarbounis, Rohan Kekre in this NBER paper analyse the Greek depression:

The Greek economy experienced a boom until 2007, followed by a prolonged depression resulting in a 25 percent shortfall of GDP by 2016. Informed by a detailed analysis of macroeconomic patterns in Greece, we develop and estimate a rich dynamic general equilibrium model to assess quantitatively the sources of the boom and bust.

Lower external demand for traded goods and contractionary fiscal policies account for the largest fraction of the Greek depression. A decline in total factor productivity, due primarily to lower factor utilization, substantially amplifies the depression.

Given the significant adjustment of prices and wages observed throughout the cycle, a nominal devaluation would only have short-lived stabilizing effects.

By contrast, shifting the burden of adjustment from taxes toward spending or from capital taxes toward other taxes would generate significant longer-term production and consumption gains.


Analysing monetary policy statements of the Reserve Bank of India

June 3, 2019

Interesting paper by Aakriti Mathur and Rajeswari Sengupta:

In this paper we quantitatively analyse monetary policy statements of the Reserve Bank of India (RBI) from 1998 to 2017, across the regimes of five governors. We first ask whether the content and focus of the statements have changed with the adoption of inflation-targeting as a framework for conducting monetary policy.

Next, we study the influence of various aspects of monetary policy communication on financial markets. Using natural language processing tools, we construct measures of linguistic and structural complexity that capture governor-specific trends in communication. We find that while RBI’s monetary policy communication is linguistically complex on average, the length of monetary policy statements has gone down and readability has improved significantly in the recent years.

We also find that there has been a persistent semantic shift in RBI’s monetary policy communication since the adoption of inflation-targeting.

Finally, using a simple regression model we find that lengthier and less readable statements are linked to both higher trading volumes and higher returns volatility in the equity markets, though the effects are not persistent.


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