Archive for August, 2021

Call for Abstracts: Graduate Student Workshop on Migration in India (October 29, 2021)

August 31, 2021

Center for the Advanced Study of India at the University of Pennsylvania provides this tremendous opportunity for graduate students (MA and PhD) working on migration in India. They can be from any area: Pol Sci, Sociology, economics, demography and so on.

The Center for the Advanced Study of India at the University of Pennsylvania is hosting an online conference on October 27 and 28, 2021, on internal migration and the special challenges faced by internal migrants in contemporary India. To accompany this event, we are hosting a closed-door workshop for graduate students in the social sciences work on this topic. The workshop will be held on October 29, via Zoom, between 6.30pm and 9.30pm IST (1.00pm to 4.00pm GMT and 9.00am to 12.00pm EST).

Our aim is to select four papers to discuss. Note, the format will not include presentations by authors. Rather, a faculty discussant will provide feedback on a complete working paper, which will also have been read by other workshop participants. All applicants, therefore, must be in a position to submit a full and polished paper to the workshop organizers by October 1.

Please apply by submitting a paper abstract of no more than 300 words using this form. The deadline for applications is September 14. Masters and PhD students at any stage of their program of study and from all countries are encouraged to apply.




On the importance of fiscal space: Evidence from short sellers during the COVID-19 pandemic

August 31, 2021

Stefan Greppmair, Stephan Jank and Esad Smajlbegovic in this Bundesbank paper show that shortsellers anticipate countries with less fiscal space will not be able to provide stimulus in case of a crisis.

Our study suggests that short sellers anticipated the importance of fiscal space. During the stock market collapse in February 2020, we see a clear rise in short positions in companies with low liquidity headquartered in countries with a poor credit rating. In countries with a good credit rating, we do not observe this change in short sellers’ strategy. This trading strategy suggests that short sellers incorporate the limited ability of fiscally constrained governments to support firms with liquidity problems into their decisions. We find that they shifted their strategy ahead of the market collapse, anticipating the importance of fiscal space. Their strategy resulted in high abnormal returns during the market downturn period of the pandemic.  

The sample is thirteen EU countries and UK and Norway. Now we know EU countries do not have fiscal space as they do not have their own currency. The open short positions are higher in UK perhaps because of London being a financial centre and lower in Norway. The Modern Monetary Theory folks would ask for a better sample of countries.

Grandparent scam in US

August 31, 2021

A federal grand jury has indicted eight persons for their involvement in the grandparent scam:

A federal grand jury in San Diego has returned an indictment against eight defendants for their alleged roles in a federal racketeering conspiracy. The indictment alleges the defendants were members and associates of a criminal enterprise that defrauded elderly Americans by making them falsely believe that a grandchild (or other close relative) was in trouble and needed their help. The elderly victims each paid thousands to tens of thousands of dollars to the criminal organization in this scheme.

This scheme has left many elderly victims financially and emotionally devastated,” said Acting U.S. Attorney Randy Grossman for the Southern District of California. “It is unconscionable to target the elderly and exploit their love for their grandchildren. Elder fraud is a serious crime against some of our nation’s most vulnerable citizens. We are committed to combating all types of elder abuse in our community.”

“Elder Fraud is a massive and growing problem, as our county’s population gets older, with losses into the billions of dollars nationwide,” said Special Agent in Charge Suzanne Turner of the FBI’s San Diego Field Office. “The San Diego Elder Justice Task Force was set up to combine resources, experience, and capabilities to have a sophisticated and coordinated law enforcement response to fight this battle.”

According to the indictment, the defendants were members and associates of a network of individuals who, through extortion and fraud, induced elderly Americans across the United States to pay thousands to tens of thousands of dollars each to purportedly help their grandchild or other close family relatives. According to statements made by prosecutors in court, the defendants swindled more than $2 million from 70-plus elderly victims across the nation, with at least 10 in San Diego County.

The perpetrators contacted elderly Americans by telephone and impersonated a grandchild, other close relative, or friend of the victim. They falsely convinced the victims that their relatives were in legal trouble and needed money to pay for bail, medical expenses for car accident victims, or to prevent additional charges from being filed. The defendants and their co-conspirators received money from victims via various means, including in-person pickup, mail, and wire transfer, and laundered the proceeds, including through cryptocurrency.

When do politicians appeal broadly? The economic consequences of electoral rules in Brazil

August 31, 2021
Moya Chin in this IMF paper:

This article seeks to identify how one difference in electoral rules – namely, if elections feature a single or two rounds – affects the extent to which elected representatives appeal to a broader constituency and how this, in turn, affects the level of public goods provided and the manner in which they are allocated across the electorate. Single- and two-round systems are the most widely used rules in democratic presidential elections (Bormann and Golder, 2013), but endogenous selection of electoral institutions makes studying their causal effects difficult (Cusack et al., 2007). I take advantage of a unique policy in Brazil that assigns a municipality’s electoral rule based on a threshold of 200,000 registered voters. Municipalities below this threshold elect their mayor in a single-round election, and municipalities above this threshold elect their mayor in a two-round election.

In a single-round election, voters vote once and the candidate with the most votes wins. In a two-round election, voters first vote and, if no candidate receives a majority, they vote a second time between the top two candidates.2 This difference generates two important distinctions. First, two-round elections require winners to attain a vote share above 50%. Second, the existence of a second round effectively limits the number of candidates (Lizzeri and Persico, 2005). Even in the first round, the top candidate effectively only needs to be concerned with the runner-up, who either threatens victory in the first round or will be the opposition in the second. Because of these distinctions, two-round elections can incentivize candidates to secure a broader base of support (Bouton, 2013; Bouton and Gratton, 2015)

The intuition is that the rules imposed in a two-round election make it more difficult for politicians to win with policies that appeal to a narrow group of voters. To the extent that politicians commit to their campaign promises, the policies they offer in order to win the election can have economic consequences. When it is more difficult for politicians to win with a narrow constituency, this reduces their incentive to provide public goods supported by a narrow constituency once in office. To examine this intuition empirically, I exploit Brazil’s threshold-based rule to assign the electoral rule for mayor in each election. I employ a regression discontinuity design across six municipal elections, between 1996 and 2016. I estimate the causal effect of the electoral rule by comparing political and economic outcomes in municipalities just above the registered voter threshold with outcomes in those just below. I obtain three main empirical results.

First, candidates in two-round elections receive broader geographical support, suggesting that two-round elections foster greater inclusiveness…

Second, once in office, politicians elected under two-round systems provide public goods differently, both in the level and distribution of municipal resources…. 

Third, these differences in resources lead to improved education outcomes in two-round municipalities. Specifically, drop-out rates are lower and literacy rates higher among cohorts of school age during the electoral term…


Is the Phillips Curve Still a Curve? Evidence from the Australian Regions

August 31, 2021

The way in which wages respond to very low rates of unemployment remains a key source of uncertainty in Australia, partly due to the lack of historical evidence to draw upon. To help fill this gap, we study data on unemployment rates and wages growth across local labour markets over the past 20 years. The considerable variation in economic conditions across local labour markets allows us to infer the strength of the relationship between unemployment and wages growth (i.e. the wage Phillips curve) at very low unemployment rates that are rarely seen at the national level.

We find strong evidence that the wage Phillips curve is indeed a curve, rather than a straight line. When the unemployment rate exceeds 7½ per cent, the Phillips curve is flat and wages growth is unresponsive to changes in unemployment. Wages growth then becomes increasingly responsive to changes in the unemployment rate as the unemployment rate falls to lower and lower levels, most notably below 4 per cent.

These findings have important implications for policy.
According to the RBA Board (RBA 2021a), the cash rate will not be raised until inflation is sustainably within the 2 to 3 per cent target range. The relationship between unemployment, wages growth and inflation is important for understanding how inflation will evolve. While endogenous policy makes it difficult to extrapolate from regional evidence to draw conclusions about outcomes at the aggregate level, our paper provides evidence as to the underlying relationship between unemployment and wages growth. This relationship is a key component of the broader equilibrium between unemployment, wages growth and inflation, and understanding it is crucial given the RBA’s policy objectives.
Couple of years ago, RBI also did a study on Philips Curve for Indian States:

This paper revisits the issue of determinants of inflation in India in a Phillips curve framework and makes two key contributions in relation to existing studies. First, in the context of the Reserve Bank moving towards a flexible inflation targeting framework based on consumer price index (CPI) inflation, this paper attempts to model dynamics of the CPI inflation. Second, this paper explores the Phillips curve relationship using sub-national data in a panel-approach. The estimates in this paper confirm the presence of a conventional Phillips curve specification, both for core inflation and headline inflation. Excess demand conditions have the expected hardening effect on inflation, with the impact being more on core inflation. Exchange rate movements are also found to have a significant impact on inflation. Overall, the paper’s findings provide support for the role of a counter-cyclical monetary policy to stabilise inflation and inflation expectations.

The Deadly Fever: A people’s history of the influenza epidemic in India

August 30, 2021

Hardeep Dhillon of Harvard University in this TheIndiaForum article narrates the people’s history of the 1918 pandemic:

The history of influenza serves as a reminder of how Indians and individuals across the Global South have long experienced the ravages of epidemics. Stories like those of Ram Singh Thind express how marginalised peoples across the globe made meaning from the devastation as they struggled for survival. Recovering their experiences opens a vital portal to explicate the historical genealogies of the global inequities in public health care that haunt the world today.

In the final lines of his poem, Thind noted his aspirations for the future. “I clasp my hands and pray before my guru for the peace of our nation.” A century on, his prayer for healing in the midst of intense suffering and protest continues to resonate.

The Industrial Organization of Financial Markets

August 30, 2021

Robert Clark, Jean-François Houde & Jakub Kastl in this NBER paper apply principles of industrial organisation to financial markets:

75 years of Orwell’s Animal Farm: A classic of all time

August 27, 2021

Animal Farm was published in England in 1945 and in 1946 in US.

Mark Satta pays tribute and says how the book and Orwellian opposition of totalitarianism remains as relevant as ever.

Mapping Behavioral Economics and its Interdisciplinary Practices

August 27, 2021

Alexandre Truc of University of Quebec at Montreal  in this paper:

Interdisciplinarity in behavioral economics (BE) has often been described as limited or decreasing since the 1980s.

In this article, we investigate the interdisciplinary practices of behavioral economists using quantitative techniques. We find that following an intense period of knowledge transfer among a handful of individuals, interdisciplinarity between economics and psychology has decreased in BE since the 1980s. However, this decreasing interdisciplinarity in BE has been compensated for by the rise of BE in the wider field of economics.

While individual BE articles have become less intensely related to psychology, the growing number of BE articles in economics as a whole has intensified the overall interdisciplinarity between economics and psychology. Moreover, the decreasing interdisciplinarity between economics and psychology in BE has not resulted from a return to a self-sufficient economic approach.

Instead, we observe a rise in the importance of management studies, as well as a variety of other disciplines in the social and natural sciences, as behavioral economists have diversified their interdisciplinary relationships since the 2000s.

Finally, the level of interdisciplinarity between economics and psychology in behavioral economics remain higher than the average economics’ article, making the specialty distinctively interdisciplinary.


Paying via (smart) wrist watches in India..

August 27, 2021

RBI has allowed one to make digital payments via different consumer services:

We invite reference to our circular DPSS.CO.PD No.1463/02.14.003/2018-19 dated January 08, 2019 on “Tokenisation – Card transactions”, permitting authorised card networks to offer card tokenisation services to any token requestor, subject to the conditions listed therein. The facility was available only for mobile phones and tablets of interested card holders. There has been an uptake in the volume of tokenised card transactions during the recent months.

2. On a review of the framework and keeping in view stakeholder feedback, it has been decided to extend the scope of tokenisation to include consumer devices – laptops, desktops, wearables (wrist watches, bands, etc.), Internet of Things (IoT) devices, etc. All other provisions of the circular referred to above shall continue to be applicable. This initiative is expected to make card transactions more safe, secure and convenient for the users.

What does tokenisation mean?

Tokenisation refers to replacement of actual card details with an unique alternate code called the “token”, which shall be unique for a combination of card, token requestor and device (referred hereafter as “identified device”)

Example? When we go to say an amusement park, we pay and get a card/token which is for a value. We enter the park and spend on different rides/food etc paying from the card/token. Then on return we give the token back (detokenisation) and get whatever cash is remaining back.

Something similar happens in these digital payments too. You store your money as a token in different wallets held in smartphone, tablets and now watches. As these digital payments are increasingly becoming acceptable by merchants, so we can make payments as if in an amusement park.

Artificial Intelligence and its discontents

August 27, 2021

Prof Venu Madhav Govindu of Indian Institute of Science provides a different perspective to increased usage of AI in our lives in TheIndiaForum.

There are two parts to the article: Part- I and Part – II.

Artificial Intelligence has exploded onto the world in recent years. Part-I of this review essay examines the nature and implications of contemporary AI. Next week, Part-II will address the multiple crises engendered by AI’s rapid and widespread deployment.


Why US Fed’s Jackson Hole conference has become a big deal over the years?

August 27, 2021

The famed annual Jackson Hole conference starts today  Over the years. the conference has become a platform where central bankers and economists get together to discuss the economic policy and agenda for the future.

How did the conference become this important? Read my piece in moneycontrol to get a perspective on the conference.

There is another interesting way to see this conference from a historical lens.


The origins of humble masala dosai..

August 26, 2021

Who can lay claim to the masala dosai? Venkataraghavan Srinivasan in this TheFederal article explores the question:

The humble dosai’s origin has been documented clearly to be from ‘Tamilakam’ backed by Sangam literature by food historian K T Achaya, who argued that ‘dosa’ was already in use in the ancient Tamil country around the 1st century AD. The polemics on this topic gets conflated with historian P Thankappan Nair’s claim that ‘dose’ originated in the Udupi town of present-day Karnataka.

This author who is a frequent traveller between Udupi and Madras (Chennai) took it upon himself to get to the root of the matter. He went in search of the Adigas, the family associated with the temple kitchens in south Canara, which takes us to Udupi. 

Udupi is arguably the birthplace of food entrepreneurship as well, cooks who used to work with temples migrated to different places in India, including to the Bombay Presidency, the place that provided venture capital required to set up their eateries. In fact, the capital was provided by the community of South Canara bankers.

One such enterprising man was Krishna Rao, who was born in Udupi’s temple town. Krishna Rao decided to venture out to the ‘black town’ of Madras, around circa 1930s, to make a living as a kitchen help. The hard-working Krishna Rao then went on to take up a ‘franchise’ of Sharada Vilas in George Town (where he had worked initially) and set up a small eatery to cater to the merchants of Kotawal Chawadi, where he achieved a bit of success. 

But Krishna Rao had tasted success and was hungry for more. Backed by ‘venture capital’ from his hometown Udupi, he opened ‘Udupi Krishna Vilas’ at the corner junction of the road leading to the Marina Beach from Mount Road. 


Coming back to the argument of the origin of the dosai, even if one concedes that masala dosa stemmed from the temple town of Udupi, geography and history make Udupi very much part of the Madras Presidency of that time. 

Therefore, while celebrating Madras Day on August 22, let us reclaim a slice of this food history and celebrate the crispy dosa with a cup of sambhar brimming with flavour. 

Hmm.. I don’t think this battle will ever end and let us leave it to the food historians..

For the rest of us, let us just enjoy eating the wonderful mouth watering dish from South India which has become so famous globally..

Will banking take off in India’s GIFT City?

August 26, 2021

My new article in Moneycontrol (published on 23 Aug 2021).

The IFSCA (International Financial Service Centre Authority) has been in action recently. It has released manuals to push banking activity in the international financial centre in Gift City. The question is whether these measures will help banking take off in the GIFT City? More importantly, how and whether IFSCA and RBI will work together to complement each other’s activities.

Read the article for probable answers to these questions.

IIM Ahmedabad’s 2nd International Conference on Indian Business & Economic History

August 25, 2021

The conference (25-27 May 2021) starts today at 2 PM.

The conference agenda is superb as always. Interested folks can register for the conference here.


Emerging Issues in GST Law and Procedures: An Assessment

August 24, 2021

Diva Mehta and Sacchidananda Mukherjee in this NIPFP paper review the GST law on its 4th anniversary :

Adopted in 2017, the Goods and Service Tax (GST) marked the beginning of a new era in the history of indirect taxation of India – an era aspiring to realize the dream of ‘One Nation, One Tax’ for one of the biggest federal democracies in the world. In line with the fiscal federalism prevalent in India, GST has not only branched into IGST, CGST and SGST with different tax rates, but also has a provision for Centre-to-State compensations to make up for the losses incurred by the States during the transition phase of GST. 
For such an elaborate taxation arrangement to face bottlenecks, both at the time of roll-out and its subsequent expansion, is not unusual. A range of tailbacks are observed, ranging from the difficulties of transitioning from the earlier regimes, difficulties in the understanding the GST law(s), various technical, procedural and administrative glitches, and above all the complexity of Centre-State relationships.
On the fourth year of the adoption of GST in India, we revisit the big Indian dream of national integration via a single-spine tax system. We explore the issues in the existing GST systems to suggest probable solutions that can smoothen the way forward.

Fable of wildcat banking in US

August 23, 2021

Recently, the regulators have compared private stablecoins to US private banks which issued their own currency. Some of these banks got intro trouble by overissuing currency and were called as wildcats.

George Selgin in this article says firstly stablecoins are not comparable to private currencies. Second, US banks were hardly wildcat banks as they are made to be. Some were which is natural to happen but not all:

The comparison has by now been made so often that it may qualify as a platitude. I mean that between stablecoin issuers and “wildcat” banks, the fly-by-night scams that supposedly flooded the antebellum United States with notes nominally worth some stated amount of gold or silver, but actually worth little more than the rag paper they were made of.

Such disreputable stuff, we keep hearing, is what “private” currency always tends to be like. The paper sort survived until Federal authorities nationalized the nation’s paper money during the Civil War. And (we are told), digital currency will be just as bad, unless the Feds take control of it as well.

In his recent contribution to your favorite online source for insightful money and banking commentary, Larry White has already explained how stablecoins differ from old-fashioned banknotes, wildcat or otherwise, and not just because they’re digital. And different stablecoins operate very differently. For these reasons, it’s unwise to draw conclusions about stablecoins from past experience with banknotes.

But as I plan to show here, it’s also unwise to generalize about privately-issued banknotes; and no generalization could be more misleading than the claim that “wildcat” banknotes were typical of the lot. In truth, wildcat banks were far from common even in the antebellum United States. And history offers many examples of commercial banknotes that were literally “as good as gold.”

Lots of history and ideas in the article..

Does Bureaucracy lead to Development?

August 23, 2021

Taliban will not be able to access most Afghan central bank assets

August 20, 2021

I had blogged earlier on how the first thing Nazis did after invasion was to take over the central bank. After all that is where the money is.

Given Taliban’s yet another invasion of Afghan, will they be able to do the same?

Apparently not. There are articles on why Taliban will not get much of Afghan central bank assets.

For instance, see this BBC article by Daniel Thomas:


Performance of Small Finance Banks – An Early Reflection

August 19, 2021

In the recent RBI Bulletin article, RBI researchers Nitin Kumar and Sarita Sharma evaluate performance of Small Finance Banks:

The Small Finance Banks (SFBs) is a relatively new bank group provided license with the objective to serve the under-served and marginalised sections of society. The article carries out a preliminary analysis based on available data to shed light on various aspects of SFBs’ functioning. The salient findings of the study are as below:


    • A basic examination of operational financials reveals relatively high credit deposit ratio of SFBs. Additionally, most of the SFBs are displaying healthy profitability with further improvements in recent quarters.
    • The empirical results based on quarterly data spanning from March 2017 to March 2020 indicate that bank-level factors like efficiency, leverage, liquidity and banking business are significant in determining SFBs’ profitability during this early period of operation.

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