Archive for January 31st, 2023

The impact of high inflation on trust in national politics and central banks

January 31, 2023

Carin van der Cruijsena, Jakob de Haanb, and Maarten van Rooija discuss impact of high inflation on Netherlands central bank:

Little is known about the impact of high inflation on public trust. Using a survey in the Netherlands, we find that the recent increase in inflation is associated with a decline in trust in the Dutch central bank and Dutch politics. The higher individuals’ perceived inflation is and the harder it is for them to make ends meet, the lower their trust in the European Central Bank, the Dutch central bank, and Dutch politics. We also find that people trust authorities considered responsible for bringing inflation down less. Quite remarkably, most people think government is responsible for maintaining price stability.


Economic Survey 2022-23: The Period 2014-2022 is Analogous to the Period 1998-2002

January 31, 2023

The government released the Economic Survey for 2022-23.

ONe of the chapters titled India’s Medium-term Growth Outlook: With Optimism and Hope compares 1998-2002 with 2014-22 period:

India’s recent economic history provides a similar parallel to this situation. During 1998-2002, transformative reforms were launched but yielded lagged growth dividends (Table II.3). This phenomenon was attributed to a series of one-off shocks resulting from external factors and the domestic financial sector clean-up, which overshadowed the growth returns from 1998 to 2002. By 2003, when the shocks dissipated, India participated in the global boom and grew at a higher rate. Similarly, in the present context, as the global shocks of the pandemic and the spike in commodity prices in 2022 fade away, the Indian economy is well placed to grow at its potential in the coming decade.

After a long period of balance sheet repair in the financial and corporate sector, the financial cycle is poised to turn upward. As the health and economic shocks of the pandemic and the spike in commodity prices in 2022 wear off, the Indian economy is thus well placed to grow at its potential in the coming decade, similar to the growth experience of the economy after 2003. This is the primary reason for expecting India’s growth outlook to be better than it was in the pre-pandemic years

There is a list of shocks, reforms and growth outcomes in the two periods.

While this comparison and analogy is interesting, it keeps the 2004-14 period completely out of the discussion. Even if one says most economic reforms were in the two periods of 1998-2002 and 2014-22 and very little was done in the 2004-14, one should mention the few reforms done in the 2004-14 period. For instance the aadhar as an idea which is behind much of the digital revolution and digital ecosystem was initiated in the 2004-14 period.


Why European banks adjust their dividend payouts?

January 31, 2023

Marco Belloni, Maciej Grodzicki and Mariusz Jarmuzek in this ECB paper:

Economic literature suggests that banks change their dividend payouts for three main reasons. They may be willing to signal good future profitability to shareholders to address information asymmetry, or use dividends to mitigate the agency costs, or could come under pressure from prudential supervisors and regulators to retain earnings. The COVID-19 pandemic led to introduction of sector-wide recommendation by regulators to suspend dividend payouts in view of prevailing large uncertainty.

Using a panel data approach for two samples of listed and unlisted European banks, this paper provides evidence that, over a decade and a half preceding the pandemic, bank dividend payouts were adjusted in line with the three motivations found in the literature.

The results are robust to selection of alternative variables representing these motivations. Banks are found not to discount expectations about future economic conditions or their own profitability when making payouts. Simulations shown in the paper suggest that, in the absence of supervisory recommendations, banks would likely have reduced the payouts only slightly in the first year of the pandemic.

%d bloggers like this: