Archive for July 31st, 2019

Night-time Luminosity: Does it Brighten Understanding of Economic Activity in India?

July 31, 2019

RBI released its Occasional Paper Series Vol. 40.  It has this paper by Anupam Prakash, Avdhesh Kumar Shukla, Chaitali Bhowmick and Robert Carl Michael Beyer on using night-time luminosity as an economic variable:

In view of the growing popularity of night-time luminosity as a measure of economic activity, this study explores the scope for using such data as a supplement
for gross domestic product (GDP) in the Indian context. We found that night-light data exhibit reasonably robust correlataion with GDP and other important
macroeconomic indicators like industrial production and credit growth at the national level.

Quarter-on-quarter growth of night lights tracks growth of GDP reasonably well. Even after controlling for seasonal factors, the relationship of night lights with value-added in agriculture and private consumption expenditure turns out to be statistically significant.

In addition, night lights are strongly correlated with gross state domestic product (GSDP). The elasticity of night lights with respect to GSDP (i.e., the so-called inverse Henderson elasticity) is found to be statistically significant, though relatively smaller in magnitude than similar estimates available at the global level.

….

Notwithstanding the presence of a statistically significant relationship between night lights and GDP, there are certain limitations of using nightlight data for economic measurement. First, given that it is just a rough approximation of economic activity, it should be considered at best as an
additional indicator and not a substitute.

Second, although night lights correlate strongly with GDP, the correlation weakens substantially when growth rates are considered, which suggests that one needs to be careful while using night-light data for analysing short-term events. The existing literature finds similar result for other countries as well (World Bank, 2017).

Third, night lights as a proxy for economic activity do not distinguish between value added in different sectors.

Hmm..

 

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Happy Birthday Milton Friedman

July 31, 2019

Milton Friedman would have turned 107 years today.

Chicago Booth School has some of his articles and others’ articles who use his work/insights.

Federal Reserve Structure, Economic Ideas, and Monetary and Financial Policy

July 31, 2019

Superb new paper by Michael Bordo and Edward Prescott. They document how Regional Feds have contributed to ideas in US mon policy:

The decentralized structure of the Federal Reserve System is evaluated as a mechanism for generating and processing new ideas on monetary and financial policy. The role of the Reserve Banks starting in the 1960s is emphasized. The introduction of monetarism in the 1960s, rational expectations in the 1970s, credibility in the 1980s, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System is documented.

Contributions by Reserve Banks to policy on bank structure, bank regulation, and lender of last resort are also discussed. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s.

Furthermore, the Reserve Banks were able to succeed at this because of their private-public governance structure, a structure set up in 1913 for a highly decentralized Federal Reserve System, but which survived the centralization of the System in the Banking Act of 1935. We argue that this role of the Reserve Banks is an important benefit of the Federal Reserve’s decentralized structure and contributes to better policy by allowing for more competition in ideas and reducing groupthink.

I actually think you see far better research in regional Feds than Washington Fed…


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