Archive for the ‘Academic research & research papers’ Category

Haunting melodies from life of Bollywood musical genius Khayyam

February 24, 2017

Khayyam saab turned 90 last week and Ajay Mankotia pays a nice tribute to his work. As kids one was always stung by his work but didn’t pay attention to the name behind the songs. It was only over time that one realised that all those wonderful songs (and many more) came from his stable alone. No words or praise can do justice to the sheer quality of his work.

Hope many more birthdays to come..

How exports from China are leading to rise in economic nationalism in Europe..

February 21, 2017

Interesting paper by Italo Colantone and Piero Stanig:

McCloskey’s Dutch Problem: Capitalist Rhetoric and the Economic History of Holland

February 9, 2017

A nice paper reviewing Deridre McCloskey’s work on Dutch economic history. It is written by Prof. Michael Douma of Georgetown University.

One gets a good glimpse of differences between Dutch and Other Scholars on why Dutch made progress ahead of others:

Deirdre McCloskey argues that rhetoric and ideas were essential for the rise of capitalism in the Netherlands in the seventeenth century. Dutch scholars could benefit from McCloskey’s views on the topic, but they will be reluctant to engage her work because it is void of primary research and does not engage most major works in the relevant historiography. Indeed, McCloskey appears to mostly select older English-language works sympathetic to her thesis, but ignores competing views. Contemporary scholarship, in Dutch and in English, emphasizes the important role of institutions and government actors in early Dutch capitalism. This article aims to situate McCloskey’s work within this literature, with the hope for more discussion in the field.
Superb stuff..

Central Bank appointments and election cycle – Case of New Zealand

February 7, 2017

New Zealand’s election is scheduled to be held on 23 Sep 2017.

However, the central bank’s term is getting over on 26 Sep 2017 as well. This is of immediate interest to those studying political economy of central banking. After all, central banks are always blamed to be favoring either incumbent or opposition government. And to have the tenure of head of central bank clash with election dates is a pot boiler.

The best way to do handle the situation is to either give the current incumbent another term or extend the term of the chief by a few months till the political cycle is over.

What becomes interesting in NZ case is that the current chief Graeme Wheeler is not interested in any extension whatsoever. Thus, the government has announced the current Deputy Grant Spencer as the Acting Governor for 6 months.

Here is press release from Government and this one from Central Bank

Finance Minister Steven Joyce will appoint current Deputy Reserve Bank Governor Grant Spencer as the Acting Governor of the Bank for six months, following the expiry of current Governor Graeme Wheeler’s term on September 26 this year.

“Mr Wheeler’s term as Governor expires on September 26, three days after the general election, and he has decided not to seek reappointment,” Mr Joyce says. “Following advice from the Cabinet Office and consultation with Cabinet, I have decided that the most appropriate course of action would be to appoint an acting Governor for a six month period to cover the post-election caretaker period. This will give the next Government time to make a decision on the appointment of a permanent Governor for the next five year term.

“I have decided to appoint Mr Spencer as acting Governor from 27 September 2017 to 26 March 2018, on the advice of the Reserve Bank Board of Directors. The Government is pleased to have someone of his calibre to move into the role. He is a highly experienced member of the Bank’s Leadership team who will provide stability and continuity through this caretaker period prior to the appointment of the new Governor.”

Mr Joyce and Mr Spencer have agreed that there will be no change to the Policy Targets Agreement for the period Mr Spencer will be acting Governor.

Mr Spencer has advised the Government that he won’t be applying for the permanent role, and intends to retire following his period as acting Governor.

The Bank has had one previous acting Governor. Former Deputy Governor Rod Carr was appointed in an acting capacity for the pre-election and caretaker period around the 2002 General election, following the resignation of Governor Brash.

Mr Joyce thanked Governor Wheeler for his service to the Bank.

“The Governor has performed his role calmly and expertly during a highly unusual period for the world economy. I thank him for his service up until now and for the remainder of his term as Governor,” Mr Joyce says.

Croaking Cassandra, a blog on NZ economy wonders about the proposal:

But there are other unanswered questions.  For example, is this a solution envisaged by the Act?     The only previous appointment of an Acting Governor was when Don Brash resigned to go into politics, and Rod Carr was appointed as acting Governor while the selection process for a permanent successor took place.  There is a clear need for acting Governor provisions in such cases –  Governor can resign, die, or otherwise become incapacitated (and can even be removed for cause by the Minster).

But here is the relevant statutory provision (section 48)

If the office of Governor becomes vacant, the Minister shall, on the recommendation of the Board, appoint—

(a) a director of the Bank; or
(b) an officer of the Bank; or
(c) any other person—

to act as Governor for a period not exceeding 6 months or for the remainder of the Governor’s term, whichever is less.

As I have read that section, it envisages an acting Governor to complete a Governor’s term. not to provide a temporary Governor when it is inconvenient to appoint a permanent one.

That interpretation seems consistent with two other aspects of the Act.  First, Governors must be appointed for an initial term of five years (although subsequent extensions can be for shorter terms).  Parliament made that choice deliberately, presumably to help emphasise that the Governor was to operate at arms-length from the government.  If, by contrast, an acting Governor could keep on being appointed for terms of six months at a time, it would allow the intent of the Act, operational autonomy, to be eroded if the government determined on such an approach, without coming back to Parliament to amend the law.

And second, the PTA provisions of the Act clearly tie in to the fixed term appointment of a Governor –  and in that context an acting Governor filling in for an unexpected vacancy (as Rod Carr was in 2002) simply carries on with the PTA the substantive Governor had had in place.  There is no provision in the Act for a PTA with an acting Governor –  and the existing PTA is personal to Wheeler, and expires with his term in September this year.

The key lesson is need to rethink through the central bank act:

More generally, it highlights again the desirability of a more throughgoing review of the governance provisions of the Reserve Bank Act.  That should not be a particularly partisan issue –  more like an opportunity for some sensible reflections and revisions in light of 27 years experience with the current framework, changes in the role of the Bank, changes in the governance of other core government agencies, and changes in the understanding of how mechanically (or not) monetary policy can be run (and monitored).


We in India are also waking up to the need to thoroughly understand the central bank act. There are just so many ways Governments can interpret the loopholes in the Act to serve their interests…



The Long Economic and Political Shadow of History

January 25, 2017

Voxeu team is coming up with a series of three e-books (free) all of which make one’s eyes to lighten up.

The first one is there on the website:

 Volume 1 of the e-book starts with our more detailed discussion of the recent literature on economic history that aims to explain the considerable persistence in economic and political development. It also includes some additional introductory chapters that review works on the spatial distribution of development, as depicted in satellite images on light density at night, summaries of fascinating new papers on the macrogenoeconomics of comparative development, and studies on environmental economic history. Next, it includes chapters which explore watershed events that have global repercussions, such as colonisation, the role of the Enlightenment on the Industrial Revolution, and the spur of commerce during the first era of globalisation.
The chapters in Volume 2 (forthcoming) feature research on the deep origins of African development and works on the legacy of colonial practices in India, China, and Australia. They cover a diverse set of major historical issues, such as the impact of the slave trades, colonial divide-and-rule policies and investments in infrastructure and human capital, the legacy of British direct and indirect rule in India, the long-lasting effect of convict resettlement in Australia, and the role of colonial ports in China. 
Volume 3 (also forthcoming) focuses on Latin and North America and Europe. The chapters on the Americas cover a plethora of colonisation-related events, such as the legacy of the mita (forced labour system in Peru), the role of Christian missions, the resettlement of indigenous communities in reserves in North America, and many more. The chapters on Europe discuss, among other topics, the role of the Protestant Reformation on industrialisation and the legacy of the Holocaust, Nazi occupation, and communism on social structure, politics, and norms. They also cover research tracing beliefs, trust and norms related to trust and social capital to the medieval times.


Indian Financial Sector: Structure, Trends and Turns (1950-2015)

January 24, 2017

A new paper by Rakesh Mohan and Partha Ray.

The highlight of the paper is its coverage of insurance industry which is usually ignored from all such financial sector analysis. Thanks to the paper one came to know of Insurance Handbook prepared by IRDAI which gives some data on the sector which is least known. This handbook is a good practice as SEBI also releases handbook on securities markets.


The top rich in Europe in the long run of history (1300 to present day)

January 16, 2017

Prof. Guido Alfani of Bocconi university says:

What will you do when central banks helicopter drop money into your account? A survey of Europeans..

January 13, 2017

The people love the idea but most will not spend the amount.

Ian Bright and Senne Janssen, economists at ING group did a survey amidst their customers on helicopter money:


Should the Riksbank (Sweden central bank) issue e-krona and is this time any different?

January 12, 2017

Came across this really interesting speech by Cecilia Skingsley of Riksbank. It is a pity that the media and experts discuss every word of speeches made by Fed and ECB chiefs much of which is repetitive. In the process, we miss such speeches which give you a panoramic view of the burning issues  by smaller central banks. And this is from the oldest central bank in the world.

Anyways Ms. Skingsley gives you a very nice historic and institutional account of central banks and their currency function. As cash usage in Sweden is one of the lowest in the world, they are talking much more about digital payments and digital currencies.

Given all this, the big question is should the central bank issue its own currency? If yes, how do we think through the changes? She says we need to think about e-krona as a complement to krona.


A case of India’s Publis Sector undertakings: Maharatnas. Navratnas and Miniratnas

January 11, 2017

Nice paper by Ajay Chhibber and Swati Gupta of NIPFP.


Doves, hawks … and pigeons: How bevaioral biases influence central bankers decisions..

January 4, 2017

Donato Masciandaro of Bocconi University has a piece showing how behavioral biases impacts decision of central bank officials:

…what happens if we assume that psychological drivers can influence the decisions of the central bankers? In a recent paper, my co-author Carlo Favaretto and I simulated a monetary policy setting with three different kinds of central bankers (Favaretto and Masciandaro 2016).

The members of an MPC (i.e. central bankers) can be split into three groups – doves, pigeons, and hawks – depending on their monetary conservativeness. In the monetary policy literature, a specific jargon has been coined: a “dove” is a policymaker who likes to implement active monetary policies, including inflationary ones, while a “hawk” is a policymaker who dislikes them (Chappell et al.  1993, Jung 2013, Jung and Kiss 2012, Jung and Latsos 2014, Eijjfinger et al. 2013a, 2013b, Neuenkirch and Neumeier 2013, Wilson 2014, Eijffinger et al. 2015); “pigeons” fall in the middle. Throughout time, the dovish/hawkish attitude has become one of the main focuses of the analysis of monetary policy board decisions.

 The model introduces sequentially the assumptions that each central banker is a high-ranking bureaucrat – i.e. a career-concerned agent – with his/her conservativeness, that a monetary policy committee formulates monetary policy decisions by voting with a simple majority rule, and finally that loss aversion characterises the behaviour of the central bankers – i.e. for every monetary policy choice, losses loom larger than gains, and both are evaluated with respect to the status quo.

The framework shows that, given the three types of central bankers, the introduction of loss aversion in individual behaviour influences the monetary policy stance under three different, but convergent, points of view. First of all, a moderation effect can emerge, i.e. the number of pigeons increases.  At the same time, a hysteresis effect can also become relevant: both doves and hawks soften their stances. Finally, a smoothing effect tends to stabilise the number of pigeons. The three effects consistently trigger greater interest rate inertia, which is independent of both the existence of frictions and the absence or presence of certain features of central bank governance.

Loss aversion can explain delays and lags in changing the monetary policy stance, including the fear of lift-off after a recession. Needless to say, the behavioural motivation doesn’t rule out the other motivations already stressed in the literature.

No owls?

It is surprising to see it take so long for such literature to emerge…

Blogging to resume in a few days

December 27, 2016

A big hi to all the visitors.  Blog is on a break for a few days. Happy holidays to all.

Was Euro a case of demonetisation and did it work?

December 20, 2016

Prof JR Varma of IIMA points to this interesting piece by Peter Guy of Regulation Asia.

Guy says:


Why don’t central bankers disagree?

December 20, 2016

An interesting piece by Richard Barwell who is a Senior Economist at BNP Paribas

He says though there is a lot of discussion on dissent in central bank monetary policy meetings, it does not mean much. It is just talk with very little action:

If the acid test of dissent within a policy committee is how people vote – rather than how they talk – then to paraphrase Lord King, all the MPC ever does is consensus. The hawks and doves are birds of a feather: they agree, all the time.  In this column, we have focused on the MPC during the Great Moderation, but the point applies more broadly.  For example, it is interesting that there is far more dissent within the FOMC over the near-term path of interest rates (e.g. ‘the 2017 dot’) than over the current level of interest rates.

Likewise, if one looks at the pattern of votes during some of the most high profile episodes of dissent within central banks that have fascinated the media and markets alike – such as ‘Svensson versus the Riksbank’ in 2010/11 or ‘Blanchflower versus the Bank of England’ in 2008 – we see the same mismatch: material differences in views but marginal differences in votes. Whether this state of affairs is optimal is debatable.  A case can be made that the quality of the internal policy debate and the external communication strategy would benefit from policymakers providing a frank assessment of the appropriate monetary stance alongside their assessment of the economy. What cannot be disputed is that either policymakers essentially agree all the time or they do not vote their view.

One has always believed much of this MPC design, communications etc is a bell and whistle thing which is mostly noise..

Demonetisation in US on 14 July 1969: How relevant is it for comparing with India’s demonetisation in 2016?

December 16, 2016

Anil Bokil, member of the Pune-based ArthaKranti Pratishthan is seen as the person behind India’s demonetisation drive in 2016. Despite the fact that this exercise is hardly anything new and has been done twice in the past (with little success), we take it to be some new thing designed by someone else.

Mr Bokil in this latest interview in ToI points to demonetisation in US on 14 July 1969:


The usage of cash in Australia (and other countries) – Current trends and future..

December 15, 2016

As talks of Australia following India grow, here is a nice note by its central bank economists on cash usage in Australia.

The authors say cash usage has declined in Aus but still remains important:

Australian consumers have increasingly been using electronic payment methods in preference to cash for their transactions. The overall demand for cash in Australia, however, remains strong. There is ongoing demand for cash for non-transaction purposes, particularly as a store of wealth. While the role of cash in society is evolving, it is likely to remain an important feature of the payments system and economy for the foreseeable future. Moreover, the current mix of banknote denominations continues to meet community demand for a secure means of payment and store of wealth. Given the ongoing importance of cash, the Reserve Bank will maintain the public’s confidence in Australia’s banknotes by continuing to ensure that banknotes are of high quality and secure from counterfeiting.

Is it a reminder to the Government as well?

They also shows how cash usage is the highest amidst old age compared to younger lot which is on expected lines.

The authors  look at cash usage trends in other countries and sees there is a gradual decline towards less cash economy. Germany and Austria continue to transact nearly 80% of transactions in cash. Sweden is the lowest at 15%!

Nice realistic assessment on cash usage in Australia.

As demonetisation fever rises across the world, a look at respective Central Banks’ laws on demonetisation…

December 14, 2016

After inspiring Venezuela, Indian could inspire Australia too. Though, Australian one already under the pipeline, it is unlikely to shock  as it did in India. Whatever anyone chooses to do now, the shock and awe title clearly belongs to India as of now.

As the recent demonetisation in India was driven  using the Indian Central Bank Act, it is interesting to what other central bank acts have to say on demonetisation/withdrawal.

So this blog tried to read through several central bank acts. Some initial findings:

  • Only Mauritius and Philipines mention the word demonetise/demonetisation in their acts. Within these two, only Mauritius clearly has a section named as Demonetisation of currency notes and coins
  • Most countries call this withdrawal, if at all.
  • The powers to withdraw or demonetise are murky to say the least just like they were in India. The withdrawal or exchange is mainly provided in case of damaged notes.
  • Most say withdrawal to be done by Board or Ministry,  in Poland the President of the Bank can do it.
  • The information is to be published in Gazette of following countries : Pakistan, South Africa, New Zealand, Mauritius and Oman. This is due to the British colonial legal system which continues to be followed.
  • Some countries like New Zealand have clear punishment laws for anyone doing currency production other than their central bank.
  • Some countries also have clear laws on period under which ceased notes shall be accepted like Oman, Denmark, Norway etc. Most of the time this period is one year.

These are just some initial bits of information. Much more needs to be expanded and learnt.

Here is a list of central banks and the specific sections picked from their acts which deals with the subject. It is randomly done and not in any order. I will try and expand on this as and when. Request the readers to add as well..


What do the Different Measures of GDP Tell Us?

December 9, 2016

Nice paper by Philip Cross of CD Howe Institute.

GDP is key to macroeconomics, yet different ways of defining and measuring GDP have particular purposes. This paper examines how total GDP can be conceptualized, dissected and studied and how these improve our analysis and understanding of the sources of economic growth. While each approach is useful, macroeconomic analysis is shifting from a short-term, recession-driven focus on managing aggregate demand to a long-term, supply-side perspective on the determinants of economic growth. This shift is likely to accelerate in the current environment of concerns about a “new normal” of slow growth, with the debate framed by supply determinants such as an aging labour force and whether technological innovations have been mostly exhausted. How one views GDP has important implications for policymaking.

If today’s chronic slow growth is due to deficiency of demand, stimulative fiscal policies might be the proper response, depending on a country’s fiscal capacity to take on more debt. However, if the shortfall in growth is due to a lack of productivity growth, different policies might be appropriate that increase the efficiency of resource use or the rate of innovation. The point is that a more detailed understanding of each measure of GDP leads to better comprehension of why it behaves in a particular way in response to different economic circumstances. This knowledge will allow policymakers to make more informed decisions.

The author reviews each of the different ways of looking at GDP and how they evolved in response to the needs of analysts. He summarizes the strengths and weaknesses of each and what can be learned by contrasting and combining them in analysis. In order the six are:

• GDP by industry;
• GDP by expenditure;
• GDP by income;
• The quantity equation;
• GDP by input/output; and
• GDP by factor input.

For economists, the different optics for viewing economic activity lead to a more profound understanding of the process of economic growth. Good analysis and policy prescription often depend on finding the right optic to understand a particular problem.

It is always good to get back to basics:

Estimation of the size of the Black Economy in India, 1996-2012

November 29, 2016

As we confuse terms like Black money,Black income, Black wealth and so on, time to read some experts.

Prof Arun Kumar of JNU has a paper looking at size of black economy in 1996-2012:

This article attempts to make an advance in the estimation of the size of the black economy in India by bringing in the institutional aspects of black income generation and taking the macroeconomic variables they affect into consideration. It is not a one-point study, as earlier studies based on the fiscal approach have been. Unlike studies based on the monetarist approach, the fiscal approach recognises that black incomes are generated through many different ways in different sectors of the economy. Hence, the size of the black economy in India is projected on the basis of data on the share of the services sector and trade in GDP and the crime rate representing the extent of illegality.

Finally, after 1995–96, estimates based on the fi scal approach are not available, and this article therefore estimates the size beyond that year. The analysis points to two major difficulties in estimating the size of the black economy. First, the lack of official studies that can provide additional data points. Second, the lack of proper econometric techniques to incorporate the missing or mis-specified variables required to carry out the estimation. All the offi cial data series are in error due to the existence of the black economy, and all the studies using such official data suffer from this.

Given the many limitations concerning data mentioned, the relative size of the black economy in 2012 turns out to be 62.02% of the GDP. The average rate of growth of the black economy in the five-year period up to 2012 was about 20%. Clearly, since projections have been made from 1996 onwards, the further out in time one goes, the larger is the likely error in the estimate. New methods of estimation of the size of the black economy are needed, and this article has made one such attempt.

The paper is an extension of earlier interviews of Prof Arun Kumar (one and two) who pointed who this demonetisation exercise will hardly achieve much. It will just be increased trouble for the poor and marginal..

Demonetisation: 1978, the Present and the Aftermath

November 29, 2016

This is the title of a new EPW paper  by J Dennis Rajakumar S L Shetty of EPW Research Foundation, Mumbai.

Sudden demonetisation of ₹500 and ₹1,0000 notes, an elimination of existing money stock that enables economic transactions, is bound to have an economic impact, apart from penalising those who hold this money as store of their tax-evaded illegal wealth. Considering various possible scenarios, a loss of gross domestic product will be inevitable. 

Whether demonetisation this time will achieve its stated purpose can be understood only when more statistics become available. The extent of demonetised high denomination currency that finally fails to be exchanged for new notes or be deposited in banks will be an important indicator.

There are some interesting trends and analysis here.