Archive for July, 2020

Distribution of Public Spending on Health: The Case of Bihar and Tamil Nadu

July 31, 2020

Mita Choudhury and Jay Dev Dubey in this NIPFP paper:

Equitable distribution of public spending has been argued to be an effective tool for enhancing access to health care and moving towards Universal Health Coverage. In India, much of the existing evidence on equity in public spending has been confined to state-level
aggregates, and intra-state distribution of public spending has received limited attention. This paper focuses on the distribution of public spending on health within two Indian States (Bihar and Tamil Nadu) to provide insights on differential access to health care within each
state. The analysis suggests that public spending on health is pro-rich in Bihar, and plays a relatively weak redistributive role. In contrast, the distribution of public spending on health in Tamil Nadu is strikingly pro-poor, particularly at lower levels of care. In both horizontal
and vertical dimensions (across districts and levels of health care), inequity in public spending is significantly higher in Bihar than in Tamil Nadu.

 

Why central banks need to think historically

July 31, 2020

Austen Saunders of Bank of England has a nice post on the Bank Underground blog (HT: Good friend Bhanu Pratap)

Central banks want to learn from history. They can do so by drawing on decades of work by economic historians, as well as their own archives which manifest layers of institutional memory. But the path from page to policy can be difficult to find. Central banks need therefore to invest in the capacity of their own staff to think historically. This will help them use evidence from the past to make better decisions in the future. In practice, this means producing historical research as well as consuming it. Institutions like central banks need to be fluent participants in the conversations which bridge the distance between past and present.

……

The past is not enough. Economic history is a complement, not a substitute, for unhistoricised, theoretical and empirical approaches. But is distinct from them because it does different things. Quantitative research can reap important insights from historical data but, where relationships are not stable and patterns in the data changeable, the data must be approached with an historical mindset. Otherwise it will be forced into a straight-jacket which might be quantitatively robust, but which ignores the movement over time and the specificity of all historical moments which gives the past meaning. These are the details which cannot be assumed away, but must be carefully attended to if the past is to speak to the present.

Future of history?

What is the future of the past? If central banks are to benefit from the lesson of history, then they need to develop research expertise alongside a sophisticated theory of history which, like all the best theories, will be manifested more in practice than in statement. Staff at central banks (both those with and without formal historical training) should therefore have opportunities to pursue historically informed research projects. Doing is always the best way of learning, and thinking through historical problems which are relevant to contemporary objectives is the best way for supervisors, analysts, and researchers to acquire an historical mindset. For the same reasons, it is desirable that training programmes and curricula for qualifications include exercises in historical analysis.

Meanwhile senior policy makers need to know when they should be thinking about problems historically by analysing parallel, contrasting, and connected episodes from the past. These might mean formally incorporating historical analysis into decision making processes. Most importantly, policy makers should know what questions to ask of those who bring them historically informed insights. No-one charged with setting interest rates would ignore the quantitative analysis of the current state of the economy they were offered. But nor would they accept it unquestioningly. They would probe and question and form their own judgements. The same should be true of historical analysis.

In time, central banks should learn to think about doing history in the same way that they think of their other research: an ambiguous but essential guide to the future.

Reflections on RBI-Government relationship

July 30, 2020

Anantha Nageswaran wrote on the evergreen topic of RBI-Govt relationship which has again become interesting  following back to back book launches by Urjit Patel and Viral Acharya.

An anonymous commentator responded to Anantha’s post which are contradictory to what most would think:

(more…)

Next US Treasury report should not designate Swiss as a currency manipulator

July 30, 2020

Didn’t know this was coming.

Mark Sobel in this piece argues that US should not label Swiss Franc as a manipulative currency:

Market speculation is heating up that the US Treasury, in its next semi-annual foreign exchange report, may designate Switzerland as a currency manipulator. Treasury brought back the Swiss onto the monitoring list in its last report in January.

Whether Switzerland manipulates the franc is a question landing repeatedly on my desk. Reaching conclusions about harmful currency practices and manipulation entails judgement. Distinguishing between Switzerland and east Asian nations – often Treasury’s focal point – isn’t straightforward. While I have no insights into whether Treasury will issue a report soon or what it might say, I think Treasury won’t designate the franc and that the balance of evidence supports not doing so.

 

The illegitimate central bank: Resever Bank of NZ ?!

July 30, 2020

Michael Reddell, a long critique of the central bank most of us admire has another damning piece on RBNZ.

He goes on to term the central bank as illegitimate…

Have economists had too much influence on policy?

July 29, 2020

Interesting debate:

Proponents of free-market economics argue that it has helped lift millions out of poverty and enhance economic growth. Others suggest that an overabundance of free-market policies has fueled inequality and had other negative consequences, both for the economy and society. Have economists had too strong a hand in policy making? On this episode of The Big Question, host Hal Weitzman moderates a discussion of that question with Chicago Booth’s Robert H. Topel and Luigi Zingales, University of Chicago’s Michael Greenstone, and the New York Times’ Binyamin Appelbaum.

A century of education at the Bombay School of Economics

July 29, 2020

Niranjan Rajadhyaksha (who else) has a superb Mint piece as Bombay School of Economics enters its centenary year in 2021:

The erstwhile Bombay School of Economics enters its centenary year this week. It began life on 1 August 1921, when C.N. Vakil was appointed as assistant professor of economics after his return from England. K.T. Shah joined as professor of economics in November. Economics teaching had begun earlier in cities such as Calcutta (1908), Madras (1916) and Allahabad (1916). Till then, Indian economists—including B.R. Ambedkar—had to go abroad for formal training in the discipline.

Finance ministry needs to immediately step in to protect the market from SEBI’s unreasonable diktats

July 28, 2020

Usually, we read experts saying that regulators need to protect markets from diktats of the government/finance ministry.

Shishir Asthana of Moneycontrol in this article says the opposite: Finance Ministry should save markets from SEBI:

Market regulator SEBI is living in a world of its own. Its recent diktats have no connection with ground reality.

What’s worse is the market regulator seems to be incommunicado. It does not listen to the brokers and their representative organisations, forcing them to knock on the finance ministry’s door.

The situation is so bad and urgent that if the finance ministry does not interfere immediately, SEBI’s diktats can structurally weaken the market.

He points to two SEBI policies which are creating problems:  pledge/re-pledge process and SEBI banning proceeds of the sale of shares cannot be used to purchase stocks till the money is credited in the client’s account.

Too early to write off the US president who never learnt the rules

July 28, 2020

Meghnad Desai in this article:

At the beginning of 2016, when few thought that he had a chance of winning the Republican nomination, much less the presidency, Trump’s bold assertion that debt was as good for the economy as it had been for his real estate business alerted me to his economic unorthodoxy. In a club of house-trained presidential candidates, he was an outsider.

His victory was a shock. The pollsters had forecast a handsome victory for Hillary Clinton. She won plurality in votes. But they didn’t reckon with the constitutional arrangements under which the popular vote had to be filtered through the electoral college, giving small states their due. Trump secured a wafer-thin lead in the required number of counties.

Trump did not move to the centre but found votes on the outer margins, in addition to the Republican party’s white voter support. That plus voters’ location helped him win [see Politicshock: Trump,Modi,Brexit and the Prospect for the Liberal Order and Trump: The First One Hundred Days: A man of contradiction and controversy]. This time, Trump faces the handicap of having lost the support – for reasons that Marsha Vande Berg has outlined – of many voters who supported him in 2016. Trump has not learnt – nor will ever learn – the rules of political good behaviour. But it’s too early to write him off.

 

A great inexcusable macroeconomics (GRIM) omission: Shorter work hours

July 28, 2020

Prof Vivek Moorthy of IIM Bangalore tracks the history of shorter work hours as a policy measure. How shorter work hours was discussed as a policy measure in the 1930s but never really took off.

What ended Great Depression? Evidence from 30 countries

July 27, 2020

Martin EllisonSang Seok LeeKevin Hjortshøj O’Rourke  in this new NBER Working Paper:

How did countries recover from the Great Depression? In this paper we explore the argument that leaving the gold standard helped by boosting inflationary expectations and lowering real interest rates. We do so for a sample of 30 countries, using modern nowcasting methods and a new dataset containing more than 230,000 monthly and quarterly observations for over 1,500 variables. In those cases where the departure from gold happened on clearly defined dates, it seems clear that inflationary expectations rose in the wake of departure. IV regressions and synthetic matching techniques suggest that the relationship is causal.

 

Effects of credit restrictions in the Netherlands and lessons for macroprudential policy

July 27, 2020

Interesting BIS paper by Gabriele Galati, Jan Kakes and Richhild Moessner:

Credit restrictions were used as a monetary policy instrument in the Netherlands from the 1960s to the early 1990s. We study the effects of credit restrictions being active on the balance sheet structure of banks and other financial institutions. We find that banks mainly responded to credit restrictions by making adjustments to the liability side of their balance sheets, particularly by increasing the proportion of long-term funding. Responses on the asset side were limited, while part of the banking sector even increased lending after the installment of a restriction. These results suggest that banks and financial institutions responded by switching to long-term funding to meet the restriction and shield their lending business. Arguably, the credit restrictions were therefore still effective in reaching their main goal, i.e. containing money growth.

How such measures were once seen as financially repressive. The research is using more supportive words for such measures now.

Building the Financial System of the 21st Century: Macroprudential becomes even more important

July 27, 2020

Luis de Guindos of ECB in this speech:

In my remarks today, I will highlight the impact that the coronavirus (COVID-19) shock has had on the banking sector and market-based sources of finance. In both the euro area and the United States, the pandemic and the related lockdown measures have led to stark economic contractions. These contractions have been shaped by key structural differences between the two financial sectors, requiring differentiated policy responses. Irrespective of these differences, a powerful trio of monetary, prudential and fiscal policy responses on both sides of the Atlantic provided critical support that prevented the financial system from immediately seizing up, which would have had severe consequences for financial stability in the near term. Looking ahead, the pandemic shock may accelerate ongoing transformations in the financial sector landscape. Moreover, the shock is highlighting the importance of macroprudential policy in both the bank and non-bank financial sectors to safeguard a stable financial system.

 

Lebanese central bank governor inflated assets as liabilities grew

July 24, 2020

All kinds of developments in world of central banking.

What to say?

 

31 July 1995: When the first mobilephone call was made in India

July 24, 2020
Surajit Das Gupta in this piece in BS:
A mobile revolution was unimaginable when Jyoti Basu as West Bengal chief minister made the first mobile call to Sukh Ram, then Union communications minister, on July 31, 1995.
Over the last 25 years, the telecom industry has been through dizzying peaks, troughs, policy U-turns, court battles, brutal competition, and daily controversies.
With a charge of Rs 18/min for voice calls to free voice calls now, and a burgeoning subscriber base, India’s telecom sector has come a long way. We look at the men who made all of this possible.

RBI Report of the Committee for Analysis of QR Code

July 24, 2020

Interesting RBI report on how QR codes can help push digital payments more aggressively in India.

The lingo of banking and payments is changing so much.  Sample this recco from the report:

Interoperability and Scalability
(a) Proprietary, closed loop QR codes are a hindrance to an open, interoperable payments ecosystem. There should be a clear plan to phase out proprietary, closed loop QR codes in favour of open, interoperable standards.

(b) Considering the scale of the country, multiple interoperable QR codes should drive the acceptance infrastructure in coming years. A common QR code or single QR across all payment instruments will create greater concentration risk. RBI should encourage multiple
interoperable QR codes like Bharat QR and UPI QR to enablefaster on-boarding of all types of merchants for digital payments.

The paper based QR code is very cost effective (sticker) and does not need any maintenance. In due course, the QR codes will
migrate to the dynamic version (generated from a software with the amount embedded). The payer’s software can handle
multiple interoperable QR codes, allowing the acceptance infrastructure to evolve.

 

Digital currency and the new cold war

July 24, 2020

Interesting podcast with David Birch who has written the book titled: The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony:

David Birch, author and adviser on digital currencies, joins Phil Middleton, chairman of the Digital Monetary Institute, to discuss David’s book, The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony. Their far-reaching conversation covers the central bank digital currency landscape, private currencies, and whether crime rates can really be demolished in this new era of digital currencies. Further topics include the regeneration of interbank settlement and the restructuring of financial markets, both domestically and internationally.

How the Restaurant Industry Is Fighting to Stay Alive

July 23, 2020

Michael S. Kaufman, Lena G. Goldberg, and Jill Avery research in HBSWK:

Coming into 2020, the restaurant industry was thriving. Within a few short months, we now see an industry back on its heels, massively disrupted by an external force so unprecedented it is almost unfathomable.

The severity of this business interruption will continue to endure and be further complicated by the mandate of many local governments that dine-in capacity be limited to 25-50 percent even after restaurants are permitted to reopen. It’s still an open question how skittish the American public will be about returning to one of its favorite pasttimes.

As a result, the restaurant industry that emerges from the global pandemic will likely look fundamentally different from the one that existed in early March. How will the COVID-19 crisis change the landscape of the industry, and what do restaurants need to do to survive? And, what should consumers, desperate to return to their favorite restaurants but wary about whether it is safe to do so, expect

Bank of Lithuania issues LBCOIN – the world’s first digital collector coin

July 23, 2020

I had blogged earlier about Bank of Lithuania developing a digital collector coin.

The coin has been issued and released by the central bank:

Today the Bank of Lithuania issued its digital collector coin LBCOIN. Based on state-of-the-art IT solutions, this is not only the first digital coin issued by a central bank in the euro area, but also across the world. LBCOIN is dedicated to Lithuania’s 1918 Act of Independence and its 20 signatories.

“The digital coin is a striking illustration of what we have achieved in just a few years following our strategic decision to take a firm path towards financial and payment innovation. It serves as a bridge that brings together classical numismatics and rapidly evolving financial technologies. I have no doubt that LBCOIN will strengthen Lithuania’s role as the regional fintech hub,” said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania. “Digital money is inevitable in digital economy.

Today, LBCOIN is what allows people in Lithuania and around the globe to test new technologies in a safe environment, e.g. go through all authentication procedures remotely, open an e-wallet, swap digital tokens with other collectors or transfer them to the public NEM network. At the same time, this also allows us to get the know‑how in issuing central bank digital currencies (CBDC), which in turn should benefit the central bank community and the euro area as a whole,” said Marius Jurgilas, Member of the Board of the Bank of Lithuania.

Fascinating bit of news..

A collaborative approach from central banks, academia, and the private sector: Lessons from Sweden’s Riksbank

July 23, 2020

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