Archive for October, 2019

Swedish monetary policy experiences after the global financial crisis: What lessons?

October 22, 2019

Nice speech by Sweden Central Bank Governor Stefan Ingves:

Sweden is one of those rare central banks which leaned against the wind and kept interest rates higher than desired to lower financial imbalances. But lately due to low inflation, it is off the lean against the wind policies:


Conference on 50 years of Bank Nationalisation: 10 days left for registration..

October 22, 2019

As mentioned on this blog often, Ahmedabad University is organising a conference on “50 years of Bank Nationalisation: Indian Banking at Crossroads” on 16-17 Nov 2019.

Registration closes in 10 days (31 Oct 2019). Pass n the word to interested people.

RBI Must Reorient Its Goals And Communication (towards financial stability)

October 21, 2019

My new piece in moneycontrol. I start the piece with this observation in the recent monetary policy:

The Reserve Bank’s October 2019 policy review saw a senior journalist questioning to the Governor on the ongoing crisis in the NBFC sector and the recent failure of Punjab and Maharashtra Cooperative Bank (PMC).

To this, the Governor said, “The points which you mentioned about the banking sector or cooperative banks or NBFCs, this is not within the purview of the MPC (Monetary Policy Committee). So, the MPC does not discuss these issues.” 

The RBI chief then went on to assure the house that the banking regulator has acted swiftly to resolve the ongoing troubles and one should not pay attention to rumours.

One was startled to note that the MPC did not discuss the most troublesome issues facing Indian economy. Even the minutes of the policy review meeting showed that there was no discussion on the failure of PMC Bank.

I am sure there was discussion, but it was off the record, given that the meeting was about the monetary policy. It is also amazing how far the RBI has come when it comes to monetary policy decisions and discussions — both within and with the media.

The piece goes onto argue the need for RBI to reorganise and make financial stability an explicit goal. It needs to fix accountability of financial stability to a DG and then communicate with markets…

From Bigtech, Fintech to Suptech: Use of technology to support supervision

October 21, 2019

Stefan Hohl, Arend Kulenkampff and Jermy Prenio in this BIS Insight:

Suptech initiatives have gained momentum but it remains unclear exactly what falls within its scope. The term is defined by Broeders and Prenio (2018) as the use of innovative technology by supervisory agencies to support supervision. Since that publication, an increasing number of supervisory authorities are beginning to explore suptech applications in different areas of supervision. In addition, other non-supervisory financial authorities (eg financial intelligence units) have also used or experimented with innovative technologies to support their work. However, the Broeders and Prenio definition only refers
to “innovative technology” without defining it.  Consequently, the differing stages of technological progress across financial authorities have led to differences in the way “suptech” has been interpreted.

This paper examines these developments by analysing suptech initiatives in 39 financial authorities globally. Most of these financial authorities responded to a survey on suptech strategies and use cases conducted jointly by the BIS’s Financial Stability Institute (FSI) and the Regtech for Regulators
Accelerator (R2A). 

While suptech will help authorities to become more data-driven, the technologies that authorities use should be appropriate to the size, complexity and development of the sectors they oversee. For example, investments in big data architecture and AI tools might not be appropriate for an authority in a low-income jurisdiction that supervises only a handful of financial institutions providing basic financial products and services. Moreover, authorities should also be aware of the issues and challenges associated with suptech. Broeders and Prenio (2018) outlined some of these issues and challenges. In particular, the lack of transparency in some of the suptech data analytics solutions is a critical issue. This underscores the continued need for human intervention in the form of supervisory expertise to further investigate the results of analyses and when deciding on a course of action.


Machine learning in UK financial services

October 18, 2019

I recently wrote a piece on Machine learning and its impact on economics and finance.

New BoE publication reviews what is happening in fin services industry in England. It finds ML is being used increasingly by the fin firms:


Africa Needs Traditional Media (so does everybody!)

October 18, 2019

Adewunmi Emoruwa, an investor in African media startups in this Proj Synd piece:

While social-media platforms offer speed and accessibility, a credible free press – committed to finding the truth and informing the public – remains vital to support accountability in places where it is often hard to find. To fulfill their role, however, independent news organizations need sufficient funding.

A history of money and how our use of it has changed down the centuries

October 17, 2019

It is always useful to read about history of money.

This piece by Peter Ranscombe in Scotsman reviews history of money. One is familiar with most part of the piece, but still good to revise..


Video Clips of Economists Explaining for Intro Econ Classes

October 17, 2019

Superb Timothy Taylor on his super blog links to these intro econ videos:

I know a number of economics faculty who have been incorporating video clips into their classes. Sometimes it’s part of a lecture presentation. Sometimes it’s for students to watch before class. For intro students in particular, it can be a useful practice because it gives them a sense that they are being introduced to a universe of economists, not just to one professor and a textbook. The faculty member can also react to the video clip, and in this way offer students some encouragement to react and to comment as well–in a way that students might not feel comfortable reacting if they need to confront their own professor.

Amanda Bayer and Judy Chevalier have been compiling a list of video clips that may be useful for the standard intro econ class. It’s available at the Diversifying Economic Quality (“Div.E.Q”) website.  Most are in the range of 3-6 minutes, although a few are longer or shorter. The economists are often talking about their own research, but in a way that the evidence can easily be incorporated into an intro presentation.

For a few examples grabbed from lectures on micro topics. Kathryn Graddy talks about her work studying the Fulton Fish Market in New York City, and how even in a highly competitive and open environment, buyers sometimes pay different prices. (Graddy also wrote an article on this topic in the Spring 2006 issue of the Journal of Economic Perspectives.)

Petra Moser discusses her work showing that “copyright protection for 19th century Italian operas led to more and better operas being written, but the evidence also suggests that intellectual property rights may do more harm than good if they are too broad or too long-term.”

Heidi Williams describes new data and empirical methodogies to study and advance technological change in health care markets.

Kerwin Kofi Charles looks at his empirical research on how the extent to which prejudice leads to discrimination in the labor market and  how it may affect wages of black workers. 1

Cecilia Rouse talks about her research on how change in to blind procedures for the musicians auditioning for symphony orchestras led to more women being selected.

In short, the presenters in the video clips are top-quality economists describing their own research, in ways that spark interest among students. In addition, economics has an ongoing issue with attracting women and minorities. This list is heavily tilted toward presentations by economists from those groups, and there’s some evidence that when intro students see economists who look more like them, they may feel more comfortable expressing interest in economics moving forward. 

Should look them up..

Three qualities for good policy and decision making: knowledge, courage and humility

October 17, 2019

Mario Draghi in this speech talks about three qualities for good policy and decision making:


Call for Papers: Conference on Money Power in Politics (Jan 9-10, 2020)

October 16, 2019

Foundation for Democratic Reforms, in association with the Indian School of Business (Bharti Institute of Public Policy) and University of Hyderabad (Department of Political Science) is organising a conference:

Foundation for Democratic Reforms, in association with the Indian School of Business (Bharti Institute of Public Policy) and University of Hyderabad (Department of Political Science) introduces Indian Democracy at Work”, a series of annual conferences aimed at facilitating dialogue between all stakeholders, encouraging public deliberation on key issues of Indian democracy and furthering democratic reform. The focus of this year’s conference would be “Money Power in Politics”.

Research papers relating to the conference sub-themes (Party Maintenance, Candidate Selection, Political Campaign Expenditure and Vote Buying) which underpin the core purpose of working towards a better democracy are invited from scholars and researchers. The description for each of these sub-themes can be found in the Concept Note. A panel of experts will review the abstracts and assess their importance and relevance. The submissions will be judged on their pertinence to the themes and adherence to the guidelines mentioned. 

Submission Timelines

Submissions open: 11:59PM, September 28, 2019
Submissions close:  11:59PM, October 30, 2019
Acceptance notification: 11:59PM, November 6, 2019
Full papers due: 11:59PM, December 22, 2019

Pass on the word…

Economics Nobel 2019 – Hail the trio, but the real party can wait!

October 15, 2019

My piece in moneycontrol reviewing the 2019 economics nobel.

The history of financial development of London

October 14, 2019

I had blogged about this new study by Prof Nathan Sussman which shows how London emerged as a financial centre before the 1688 glorious revolution.

Voxeu has a good interview of Prof Sussman where he explains his study and some more ideas on history of finance, London, Europe and so on..

What holds back female economists from making a career in central banking: the gender promotion gap

October 14, 2019

Luc Laeven and Ana Lamo of ECB in this article:

The underrepresentation of women in economics is perhaps nowhere as visible as in central banks. This Research Bulletin article uses anonymised personnel data to analyse the career progression of men and women at the European Central Bank (ECB). Women were less likely to be promoted up until 2010, when the ECB issued a statement supporting diversity and took measures to support gender balance. Following this change, the promotion gap disappeared. This masked a lower probability of women applying for promotion, which is partially explained by an aversion to competing, combined with a higher probability of being selected after having applied. Following promotion, women performed better in terms of salary progression, suggesting that the higher probability of being selected is based on merit, not positive discrimination. Thus, organisations such as the ECB should provide training and services that target the competition-related reasons that discourage women from applying for promotion.


Machine learning in economics: Should economists worry?

October 14, 2019

My new article in Moneycontrol. Bottomline:

It is a good time for those with a computer science background to think of a career in economics!

The art of money laundering: How money laundering world uses art markets for illicit fund transfer

October 11, 2019

Tom Mashberg of IMF in this superb piece argues how art markets are being used in money laundering world:


What’s wrong with bank culture?

October 11, 2019

Huw Macartney of University of Birmingham has recently written a book: The Bank Culture Debate: Ethics, Values, and Financialization in Anglo-America.

In this LSE blogpost, he explains some bit:

Each year I give an undergraduate lecture on student loans. It is a thoroughly depressing two-hour slot. But each year it also reminds me how the student experience has changed since I began my undergraduate degree in 1997. One memory stands out in particular. It is the memory of visiting four large UK retail banks in my local village and being offered £50-£100 to open one of their credit card accounts. Free beer money for me I reasoned; and someone in the bank moved one step closer to reaching their sales targets. A win—win outcome.

Since the mid-2000s, though, this “culture” in the banks has come under a lot of scrutiny. In the UK customers became aware that the payment protection insurance they had been obliged to buy was virtually worthless; in the US mortgages were being sold to households who had no hope of making the repayments once the introductory offers expired; and then stories of Wells Fargo employees chasing potential checking account customers around shopping malls – to meet an end-of-month sales target – emerged in the mid-2010s.

So, what is bank culture? Academic accounts tell us that a corporation’s culture refers to the beliefs and actions of its employees. Culture drives behaviours and strategies. It is what employees of an organisation live and breathe daily. Neoclassical economics usually assumes that behaviours stem from financial incentives: offer an employee a big enough bonus and he or she will sell life insurance to a corpse. Behavioural economics shows that status and approval are equally important: getting the biggest bonus is often more important than the actual financial sum itself. Some studies have therefore concluded that culture may even be the determining factor behind the long-term success and sustainability of a firm. As the financial crisis showed however, the opposite can also be true.

After the financial crisis and numerous scandals – rate-fixing, money-laundering and mis-selling – policymakers in the UK and the US made banking culture a top priority. A multitude of new institutions were established, and new laws passed. Huge amounts of political and economic resources were thrown at the bank culture problem.

My most recent book argues, however, that after this monumental political and economic effort everything and nothing has changed in Anglo-American banking culture. What do I mean? Well, as is often the case, what you see depends on where you stand.

The message to reform culture has gone totally wrong:

For the 150 or more bank employees that I spoke to in both the US and the UK their work environment – their “culture” – has become extremely claustrophobic. Every email is scanned and scrutinized; casino-style cameras – monitoring employee behaviour patterns – have been introduced; in some banks sales targets have been completely abandoned; and criminal penalties have been introduced for misconduct. Bank staff feel constrained and derided. Countless times I was told that the world of banking has changed beyond recognition.

But I argue that this is an unhelpful way to think about bank culture, because it over-emphasises the internal perspective on cultural reform. Put differently, the degree of bank culture reform should also be examined from a broader perspective. The question ought to be: has the culture reform agenda helped remedy the inequality and instability that the largest banks contribute to and profit from? Seen from this perspective the answer – I argue – is, no. Banks – particularly in the UK and the US – are arguably amongst the most important corporations, wielding massive influence over democratic politics and a huge role in shaping society.

Debt is the most obvious example of the latter. Given relatively stagnant wages in both the UK and the US and the dependence on consumer spending – consumption – to drive these economies, it seems we cannot live without our credit cards. This process empowers the banks, as guardians of the credit economy. And it is also one reason why banking culture matters to us all.

From this wider perspective I argue that banking culture in the Anglo-America economies has changed very little. Wages in the financial sector are still disproportionately high. Pro-economic recovery measures such as quantitative easing and low interest rates have boosted asset prices and aided the profitability of the banks, but there is little evidence that these measures contributed to an economic recovery. And the figure below shows that after a slight dip bank bonuses at some of the top US banks soon rocketed again. This is why I say that everything and nothing has changed.

As regulators argue that so much has been achieved since the 2008 crisis in terms of banking capital and leverage. But this thing called poor or gross culture in financial services industry remains unchanged.


State’s role in the payment market is a matter of urgency: Case of Sweden

October 11, 2019

The usage of cash has declined significantly in Sweden. So much so, the polity has to pass laws to ensure people do not refuse cash as a payment.

Gabriel Söderberg of RIksbank in this note argues that the government needs to play an active role in development of e-krona.

The e-krona brings up many different issues. What is the role of the central bank and ultimately the state in society? What is money and how should we organise the payment  system so that it functions as well as possible? And what do we mean by “as well as possible”? In other words: what attributes do we as a society wish our money and our payment system to have? The economic analysis performed by the Riksbank at the start of the project has therefore been joined by a wider societal analysis and the insight that the ultimate decision on the future of the e-krona is affected by areas beyond economic analysis,
including values as to how society should be organised, and should therefore be the subject of a political decision.

Goes back to some of the fundamental questions about money. Some of these questions would have been asked when the State was beginning to get into money…



Cooperative Banks: From humble origins to focus of economic policy (1904-69)

October 10, 2019

I wrote a longish article on history of coop banks.

Here is the pdf: Cooperative Banks Humble Origins to Centre of Indian Economic Policy (1904-69)


Review of RBI Internal Working Group on Liquidity Management

October 10, 2019

RBI has been on fire of late releasing one report after the other. I reviewed following reports: agriculture credithousing securitization, secondary market for corporate loans and of course the Jalan Committee.

On 26 Sep 2019, RBI released another report of an Internal Working Group (IWG) to Review the Liquidity Management Framework. This post reviews the committee report.


What a decade of monetary policy innovation has taught us?

October 10, 2019

Not sure there has been any innovation, but nevertheless.

Philip Lowe, Chair of the CGFS (and Governor of the Reserve Bank of Australia) and Jacqueline Loh, Chair of the Markets Committee (and Deputy Managing Director of the Monetary Authority of Singapore) in this FT piece argue:

The global financial crisis presented central banks with unprecedented challenges, and their response was to take extraordinary actions. A decade on, we can say that these measures succeeded in saving the global economy from deflation, but also introduced some distortions in a few areas of the capital markets.

Many central banks introduced unconventional monetary policy tools following the crisis. They embarked on large-scale asset purchases and expanded lending programmes, increasing their balance sheets to historic levels. Interest rates were cut below zero in several countries. Two committees at the Bank for International Settlements released complementary reports today assessing the effectiveness of unconventional monetary policy instruments and analysing the impact of large central bank balance sheets on market functioning.

Unconventional policy tools emerged out of necessity. In the countries hardest hit by the economic crisis, the financial sector stalled and stopped doing its job, hamstrung by losses and drained of liquidity. The subsequent recession sent unemployment soaring. With inflation and interest rates at low levels, the limited room for conventional policy manoeuvre was quickly exhausted.

On balance, central bankers say that the results of unconventional policies have been positive. Interventions helped smooth investor and consumer expectations and jump-start markets. Research by bankers and academics points to a positive response of economic activity to the extra stimulus provided by unconventional tools. The risk of a deflationary spiral was largely avoided, though inflation still undershot central bank objectives.

Balance sheet-expanding policies aimed at improving market functioning delivered on this front. Balance sheet policies aiming primarily to provide monetary stimulus had some side-effects on market functioning.

The path has been neither smooth nor straight, and some policies have been more successful than others. The reports conclude that corrections to the initial plans were necessary in view of the experience gathered in the course of implementation. Balance sheet policies aiming primarily to provide monetary stimulus had some side-effects on market functioning – especially in terms of reducing the availability of bonds in the market – which were addressed by central bank countermeasures.

In addition, the style of central bank communication about policy intentions and use of these tools had to be adjusted to changing circumstances and fine-tuned to the interpretations that market participants gave to policy messages. Monetary policy is a powerful but not very precise tool and prolonged easing can have side-effects. In part, it works by stimulating aggregate expenditure in a slump by encouraging investors and consumers, who have become overly cautious, to take more risk. Unconventional tools work the same way and, as the reports discuss, protracted use may also encourage imprudent behaviour by market participants.

In a world with open financial borders, it also has spillovers. Investors obtaining cheap funding at home can seek returns abroad, and recipient economies need to manage capital flows in a way that is consistent with their own priorities and needs.

The central banks that used unconventional policies report that these tools have earned a place in their policymakers’ toolbox. They can provide additional policy space and flexibility, allowing a central bank to achieve its mandate when conventional tools have reached their limits. In a world of low inflation and structurally low real rates, they may become increasingly important.

Another lesson is that the tools need to be complemented with measures that reduce side-effects. Such measures could include securities lending facilities that mitigate the scarcity effects from central bank asset purchases, and policies that reduce the impact of negative rates on banks funded by retail deposits.

Money markets must maintain sufficient capacity to function after the extraordinary liquidity is withdrawn, and central banks must preserve operational flexibility to address unexpected changes. Central banks also need to strike the right balance between providing guidance that reduces uncertainty and unduly narrowing down central bankers’ options to respond to changing circumstances in the future.

The reports suggest that unconventional tools’ effectiveness can be strengthened if central banks communicate that they are willing and able to use them. This is best done in a way consistent with each bank’s legal mandate and institutional framework.

Central bank credibility is a major determinant of the effectiveness of monetary policy and this applies as well in the use of unconventional tools. At the same time, their use is best seen as one component of an overall public policy framework that encompasses fiscal and prudential policy responses. Policymakers should avoid placing a disproportionate burden on monetary policy.

This is more like patting one’s own back!

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