Archive for the ‘Academic research & research papers’ Category

How France continues to dominate its colonies via the currency system

August 17, 2018

Fascinating piece on The Minskys Blog:

French geopolitics in Africa is interested in natural resources. Initially, the franc zone was set as a colonial monetary system by issuing currency in the colonies because France wanted to avoid transporting cash. After these countries gained their independence, the monetary system continued its operation and went on to include two other countries that were not former French colonies. At present, the CFA franc zones are made up of 14 countries. The fact that even today the currency of these regions is pegged to the euro (formerly French franc) and that reserves are deposited in France shows the subtle neocolonialism France has been pursuing unchecked. It is a currency union where France is the center and has veto power. This is supported by African governing elites who rely on the economic, political, technical, and sometimes military support provided by France. It is no wonder then that these former colonies are not growing to their full potential because they have exchanged development through sovereignty for dependency on France. This article investigates the set up of the CFA franc zones, its ties to French neocolonialism and its ability to further breed dependency in the former colonies of West and Central Africa.

Why French continue to dominate compared to say British?

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How forex market operations of the RBI alter domestic liquidity conditions: A Primer

August 16, 2018

A team of RBI researchers (Janak Raj, Sitikantha Pattanaik, Indranil Bhattacharya and Abhilasha) have this nice short note in recent RBI Bulletin.

This article explains how forex market operations of the Reserve Bank of India alter domestic liquidity conditions, which are then modulated consistent with the stance of monetary policy. The Reserve Bank’s intervention in the forex market is aimed at containing volatility. The
attendant impact on liquidity conditions may necessitate durable liquidity absorption/injection operations by the Reserve Bank depending on the state of durable liquidity requirements of a growing economy at any point in time. The effectiveness of sterilised interventions, however, may occasionally become an issue for the independent conduct of monetary policy.

It is a good primer to figure the several interlinkages in RBI’s policies.

So, when capital flows are excessive, RBI sterlises the flows by doing open market purchases. This purchases in turn lead to higher interest rates leading to more capital flows. So we have both sterlisation (first round) and offset sterlisation (in the second round). The primes also estimates coefficients of both the sterilisations:

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The difficulty of being a monetary/banking policymaker in Europe: Balancing European and nationalistic interests

August 16, 2018

Ms Sabine Lautenschläger of ECB in this interview speaks about the state of banking developments and regulation in Euroarea. The interview talks about other things such as lack of women representation in central banking, stronger state of US banks and so on.

But what was most interesting is the way she balances her answers. The interviewer asks her a country specific question but she just replies for the Euroarea as a whole:

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Legal Protection: Liability and Immunity Arrangements of Central Banks and Financial Supervisors

August 13, 2018

Interesting paper by Ashraf Khan of IMF.

We rarely talk about this aspect of central bank governance and accountability. Whether and how the laws protect the officials and staff of central bank:

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The ethnic segregation of immigrants in the US from 1850 to 1940

August 10, 2018

Interesting piece by Katherine Eriksson and Zach Ward:

Building State capacity for regulation in India

August 10, 2018

Four Shubho Roy, Ajay Shah, B.N. Srikrishna and Somasekhar Sundaresan review practices of regulators and their regulations in India.

At the beginning, we had Indian socialism, a world where departments of government indulged in bans, schemes, public sector enterprises which were often monopolies, entry barriers, price controls, and intervened in detail in products and processes. The objective of the reforms was to get to private competitive industries. However, there is a need to address market failures. It was felt that this would be done by specialised sectoral regulators which would bring a new style of limited intervention in the working of private competitive markets.

A few decades into this journey, the results are disappointing. At its worst, the regulator has become like the erstwhile department of government, operating bans, schemes, entry barriers, owning or controlling organisations that are players or even monopolies in the regulated industry, forcing price controls and intervening in detail in products and processes. These outcomes derive from limited
understanding of regulation in the 1990s, which led to errors in the drafting of law. There was inadequate understanding of what is a regulator, and inadequate understanding of the principal-agent problems between Parliament/department and the regulator. Too often, Indian laws have treated the text of the SEBI Act as a template for the construction of other regulators, and this is a poor foundation
to build on.

The way forward lies in focusing on the incentives of employees of the regulator. State capacity does not come from exhortations to better behaviour, or by recruiting great men. The individuals who man regulators respond to incentives. Institutional capabilities arise through modications of these incentives. These incentives are determined by the text of the contract between principal and agent, i.e. the Parliamentary law that creates the regulator. The key insight lies in addressing these problems using the tools of public administration and legal thinking.

The paper mainly focuses on financial regulators/regulation but I guess would apply to other regulators/regulations as well.

We need more of such papers which help us in figuring the several governance and regulation issues in India.

Before Philips there was FIsher: How Irving Fisher first estimated the statistical relationship between inflation and unemployment

August 8, 2018

I didn’t know this at all. But then trust Irving Fisher to have worked out most of the macroeconomic relationships before others.

Came across this paper by Fisher where he had estimated the relationship between inflation and unemployment in 1926 for US economy. Philips estimated the relationship for UK economy in 1958. So before Philips there as Fisher:

The possible relation between changes in the price level and changes in the volume of employment, much discussed by economists at the present time, has already been debated in the pages of the Review. In the present article Professor Fisher, one of the foremost authorities on monetary problems and for years a protagonist of stabilisation, removes the question from the sphere of controversy to that of exact statistical research. He has found a remarkably high correlation between the rate of price changes and employment, and he describes the methods by which he has achieved this result. The data used refer exclusively to the United States, and further research would be required before the conclusions could be applied directly to other countries. Nevertheless, this objective statistical confirmation of a relation long asserted to exist is a highly important step in advance.

The paper is based on old style writing where one took a lot of care to explain the stats relationships. Unlike today’s papers where there is just a jumboree of relationships and regressions and much of the figuring is left to the reader.  Even the way Prof Fisher explains whether one should take level or changes is quite something.

He also writes how he had dedicated atleast one computer in his office (how many did he have? ) to estimate the relationship between inflation and unemp for last three years! Just tells you the role computers have played in economics where these relationships can be estimated in a few seconds on a laptop…

The evolution of Reserve Bank of India as a full-service national institution

August 6, 2018

I just figured Dr YV Reddy has put up a website which has all his major speeches as a policymaker and post his policymaker avatar.

One such speech looks at evolution of RBI as what Dr Reddy calls as a full-service national institution. This is even bigger than the oft cited term for RBI as a full-service central bank and its evolution being different from the other central banks in the world. By calling it a national institution, Dr Reddy looks at the several development activities RBI has undertaken (both willingly and by force) in its history.

In conclusion, the RBI has been serving the nation since Independence to the best of its capacities and acquired a reputation for high integrity and professional competence. Over a period, it has won the trust of people at large and the financial system, particularly the banking system. However, the extent to which and the way it could serve the nation has been dictated by the demands from the government and evolving economic compulsions.

In doing so, it wore different caps, custodian of the trust of people in money and finance; the protector of integrity of banking system, the policy instrument for development and adviser to State Governments also.

It was sometimes an agent, often an adviser, and to the extent feasible, an operationally independent central bank.

Over a period of 70 years, RBI has earned the respect of people at large, domestically, and admiration of many, globally, as a full service national financial institution.

The speech was given at State Bank of Pakistan and it would have been great if the former Governor of RBI even discussed the RBI events during partition. But perhaps given the sensitivity of the matter, he avoided it. Even then some anecdotes etc could have been included by looking at the brighter aspects of RBI functioning during the Partition.

Another thing is the speech is hardly critical of any development within RBI. The evolution is discussed mostly in the positive light and no missteps are discussed in its nearly 85 year journey. Dr Reddy has such wide experience and has been a student of world monetary affairs for a very long time. By touching on certain matters which offers scope for improvement and introspection, one could be made to think over future of RBI and central banking in general.

Nevertheless, a good overview…

Richard Thaler and the Rise of Behavioral Economics

August 6, 2018

Prof Nicholas Barberis of Yale Univ pays tribute to Prof Richard Thaler’s work in this paper. It is also one of the best summaries of both Thaler’s work and behavioral economics.

In the end Prof Barberis concludes hoping beh eco becomes a more integrated discipline and not a seperate subject as it is today:

In his talks and writings, Thaler has often noted his wish for “the end” of behavioral
economics. His hope is that economics will reach a point where there is no need for separate
courses or conferences in behavioral economics. Rather, the ideas of behavioral economics
will be fully integrated into existing courses on financial economics, labor economics, macroeconomics,
and so on; moreover, all research economists will be familiar with these ideas and
will apply them as appropriate in their work. While there is some way to go before this goal
is reached, the underlying vision is starting to be realized. More and more often, researchers
who do not identify particularly as behavioral economists are nonetheless incorporating behavioral
ideas into their analyses. The end of behavioral economics is in sight, and Richard
Thaler is surely heartened to know it.

Hmm..

Profile of Agustín Carstens: Learning early lessons of economics to becoming Saint Carstens in Mexico

August 2, 2018

Interesting interview of Agustin Carstens, chief of BIS.

As a Mexican Finance Minister and central bank Governor, he earned the title San/Saint Carstens. Which as the article says, is quite an achievement for any Mexican/Latin American politician/economist:

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Life below zero: bank lending under negative policy rates

August 1, 2018

Florian Heider, Farzad Saidi, Glenn Schepens of ECB review ECB’s negative interest rate policy. More importantly, they criticise the whole bit as it has encouraged more risk taking amidst banks:

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The state of New Keynesian economics: A Partial Assessment

July 30, 2018

Jordi Galí reviews the research around New Keynesian economics.

He says it still remains robust:

In August 2007, when the first signs emerged of what would come to be the most damaging global financial crisis since the Great Depression, the New Keynesian paradigm was dominant in macroeconomics. It was taught in economics programs all over the world as the framework of reference for understanding fluctuations in economic activity and inflation and their relation to monetary and fiscal policies. It was widely adopted by researchers as a baseline model that could be used flexibly to analyze a variety of macroeconomic phenomena. The New Keynesian model was also at the
core of the medium-scale dynamic, stochastic, general equilibrium (DSGE) models developed and used by central banks and policy institutions throughout the world.

Ten years later, tons of ammunition has been fired against modern macroeconomics in general, and against dynamic stochastic general equilibrium models that build on the New Keynesian framework in particular. The criticisms have focused on the failure of these models to predict the crisis, a weakness often attributed to their lack of a financial block that could account for the key factors behind the crisis, whose origin was largely
financial.

Other aspects of the New Keynesian model and its extensions that have been the target of criticism include the assumptions of rational expectations, perfect
information, and an infinitely-lived representative household.

Those criticisms notwithstanding, the New Keynesian model arguably remains the dominant framework in the classroom, in academic research, and in policy modeling. In fact, one can argue that over the past ten years the scope of New Keynesian economics has kept widening, by encompassing a growing number of phenomena that are analyzed using its basic framework, as well as by addressing some of the criticisms raised against
it. Much recent research, for instance, has been devoted to extending the basic model to incorporate financial frictions in the basic the model, as described in Gertler and Gilchrist (2018) in their contribution to the present symposium. In addition, the New Keynesian model has been the framework of choice in much of the work aimed at evaluating alternative proposals to stimulate the economy in the face of the unusual circumstances triggered by the crisis, including the use of fiscal policy and unconventional monetary policies.2

The present paper takes stock of the state of New Keynesian economics by reviewing some of its main insights and by providing an overview of some recent developments.

It is a decent primer on New Keyensian macroeconomics…

Milton Friedman and the case for flexible exchange rates and monetary rules

July 27, 2018

Harris Dellas and George S. Tavlas (both at Bank of Greece) review Friedman’s thinking on flexible exchange rates.

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Making economic research more readable and interesting…

July 27, 2018

IMF has redone its Research Bulletin.

IMF has renamed it as Research Perspectives and has presented it in a “fresher, bolder look”.

When you read the Spring/Summer 2018 issue of the IMF Research Perspectives (formerly published as IMF Research Bulletin), if we did it right, you will meet
the more approachable, more human side of IMF research and IMF researchers. The bulletin has just turned 18, and we thought this was a good time to revamp the design and content. How?

First, we transformed our Q&A feature into a complete interview. Second, we added more research summaries to give you a better sense of what IMF research has to offer on recent topical issues. Third, we changed the design to make your reading experience more enjoyable and reaching out to the contributors
easier. And, of course, we changed the name to Perspectives, which we feel more accurately reflects our new approach focused on sharing views and encouraging interaction.

One thing that hasn’t changed is our commitment to conduct and disseminate state-ofthe-art, policy-relevant research to foster further discussion for better
policymaking around the world. 

Such an undertaking would not have been possible without a dedicated group of individuals: the guest editorial team led by Sweta Saxena and the design team led by Felipe Leon deserve the utmost credit.

We hope you will like our fresher, bolder look. Let us know what you think.

Looks promising with all the colors and pictures.

Some institutions like IMF are making efforts to make their economic research more readable and accessible. This is encouraging.

A dialogue between a populist and an economist

July 26, 2018

4 IMF economists have this interesting way of presenting research. The research is on trying to understand the rise of populism in the world. One could just go about preparing a research paper with detailed lit review, research 0bjective, research gap, methodology, empirical estimation, result explanation and then conclusion.

But instead the econs choose to explain their research via a dialogue between a populist politician and economist:

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The history and future of Quantitative Easing…

July 26, 2018

Ben Broadbent of Bank of England reviews the experiences of QE policy. He remembers Friedman and Shwartz’s work on US monetary history:

In 2002, the University of Chicago held a 90th birthday party for the great American economist Milton Friedman. One important guest was Anna Schwartz, who four decades earlier had co-written with Friedman the landmark book A Monetary History of the United States.

It’s possible that, even among those of you prepared to give up a pleasant July evening to come to a talk by a central bank official, an 800-page tome entitled “A monetary history of [anywhere]” won’t have found its way to the very top of your holiday reading list.

But it’s actually a gripping read, especially the chapter about the Great Depression. It also has a claim as the most influential piece of economic history ever written. The book pioneered a new “narrative” approach to identifying independent changes in monetary policy – the idea being that, to separate these from the more automatic (“endogenous”) reactions of policymakers to the economy you needed to scour the historic record and understand how their decisions were actually taken.

It changed economists’ perceptions of the role of monetary forces, including monetary policy, in economic fluctuations. For example, it helped to establish the view that the effects of monetary policy on real variables – real national income or its distribution, for example – are in the long run negligibly small. You cannot permanently enrich a country, or raise real wages, simply by easing monetary policy and engineering some inflation.

Equally, the book argued that policy can have very powerful effects at shorter, cyclical horizons. In particular, it claimed that the Great Depression could have been averted had the US Federal Reserve not over-tightened policy in the late 1920s and if had it acted more precipitously to loosen it once the downturn
began. The appropriate measures would have included an earlier abandonment of the gold standard. They would also have involved “large-scale open-market purchases”, designed to contain the rise in private-sector bond yields and supply reserves to the banking system. We have a new name for this – we now call it
“Quantitative Easing” – but the policy itself is not new.

He says QE is not printing money and has had impacted on the lines of Friedman/Schwartz:

QE has often been described as a “new-fangled” policy, something that involves “printing money” and has served only to engineer large rises in the prices of financial and other assets, benefiting only the better off. 

Broadly speaking I don’t think any of these things is true. It’s not new; it’s not exactly printing money; equity and house prices are in real terms still comfortably below their pre-crisis levels; inequality hasn’t risen – nor, according to the most detailed analysis available, did easier monetary policy have any net impact on it.

To be sure, asset prices would probably have fallen further had QE and other measures not been put in place in 2009. The same goes for the economy itself. As far as we can tell, asset purchases provided significant support to aggregate demand, even if it wasn’t enough to offset fully the extended contractionary
effects of the crisis. Perhaps Friedman and Schwartz over-emphasised the failures of the US Fed as a cause of the Great Depression. But I don’t think anyone can reasonably argue it was worth risking those same mistakes a second time.

Later rounds of QE may have been less effective than the first. In the US, where the Fed has begun to shrink its balance sheet, its “QT” announcements appear to have had very little impact. At least in part, that’s likely to be by design. The pace of unwind is very gradual. And the FOMC emphasised that, to the
extent a shrinking balance sheet tightened monetary conditions the official interest rate would be commensurately lower (than it would otherwise have been). The overall stance of policy would be set to ensure the central bank meets its objectives.

The same is true here. Our task remains to hit the inflation target and we will always seek to ensure that the combined effects of the APF and of more conventional changes in Bank Rate are set to that end. 

The debates on QE being a success or failure will interest econs for a long time…

How Ronald Coase continues to influence and inspire economics…

July 26, 2018

Prof Barak Richman has written a book Stateless Commerce.

He pays tribute to Coase for inspiring the book:

Although I never met Ronald Coase, his thinking has had a meaningful influence on my own work, nowhere more evident than in my recently
published book, Stateless Commerce: The Diamond Network and the Persistence of Relational Exchange.1 Although it is hubris to suggest that my
book might have garnered some of his attention, one of my biggest regrets in taking so long to complete the book—a project that by some measures was
nearly 20 years in the making—is that it was ultimately published after Professor Coase’s death.

At this panel at the Canadian Law and Economics Association Annual Meeting, which is dedicated to “the Legacy of Ronald Coase,” I take
this opportunity to identify three foundations of Professor Coase’s intellectual legacy—three paradigmatic elements of what constitutes a Coasean framework— that had deep influence on my research and my book.

First, Professor Coase encouraged economists to be curious about problems and puzzles of real-world phenomena. As Ning Wang remarked at this
panel, Professor Coase once asked rhetorically, “Do we concern ourselves not with the puzzles presented by the real economic world but with the
puzzles presented by other economists’ analysis?

Second, the Coasean analytical lens was never unidimensional. Both his 1937 and 1960 seminal articles pose contrasts between systems of commerce: in
1937,4 it was the market and the firm, and in 1960,5 it was the rancher and the farmer. Professor Coase’s overarching questions in both landmark articles were broad and ambitious, asking what happens when two separate spheres of commercial activity collide with each other within a common economic space.
The research questions never focused on single variables or myopic hypotheses. They instead understood the complexity of human behaviors and the many
economic forces that shape real-world endeavors.

And third, Coase urged employing comparative institutional analysis. The question is not how to achieve ideal efficiency but instead to understand and
compare alternative methods of organization. I consider this to be a consummately scholarly approach to economics. It rejects ideological predispositions
and hypothetically perfect markets and instead tries to assess the relative merits and drawbacks of different economic contexts.

He adds how his book tries to fit around Coasean framework..

Targeted inflation targeting: A proposal to improve the ECB monetary framework

July 25, 2018

Anotine Levy, PhD candidate at MIT suggests that ECB should target weaker EMU countries more aggressively:

History of Mutual Funds in India: Was UTI the first?

July 23, 2018

We are celebrating 25 years of private mutual funds in India. In 1993, the Government allowed entry of private sector in mutual funds. This liberalisation of mutual fund space was part of broader economic reforms initiated in the country after the 1991 crisis. The first private mutual fund was Kothari Pioneer which interestingly was based in Chennai and not Mumbai, the centre of Indian financial markets.

This is also a good time to reflect on history of mutual funds in India.

The history of mutual funds in India is usually seen as starting from Unit Trust of India (UTI) in 1964, started by the government to help retail investors get access to capital markets in India. UTI may have been the first public sector mutual fund in India but it was hardly the first-time funds were mobilised from small investors and give them exposure to stock markets.

Dr. V.V. Bhatt in this research paper (1979) on Syndicate bank pointed how the bank started a stock market scheme in 1960.

In 1960, the bank pioneered a unique investment service through its Investors’ Agency Department. This service enabled middle-income savers to invest in shares of reputable companies. The persons joining the scheme were ensured a return of 9 to 10 percent per year on their saving; the bank, in turn, invested these sums in shares. This scheme became very popular with middle-income groups in semi-urban areas persons who were not familiar with the stock market. It was a precursor to the Unit Trust of India sponsored by the Central Bank in 1964. The following year the Syndicate’s investment service ended because the Central Bank thought it could compete with the Unit Trust of India.

One was simply taken aback reading this as just like several others, one thought UTI was the starting point for such initiatives in India. But Syndicate Bank’s IAD pioneered this earlier. Dr. VV Bhatt could figure this as he =was an independent director with Syndicate Bank in the 1960s. Otherwise, this too would be lost.

My further research revealed that Syndicate Bank’s founder Dr T.M.A. Pai wished to start a scheme to provide better returns to the bank’s depositors.  He was also looking to boost the earnings of the overall bank which was reliant on its own operations where one earned the spread between loan rate and deposit rate (adjusting for establishment expenses).  In finance parlance, the idea was to shift reliance from fund income to fee income.

Syndicate Bank had earlier also started initiatives such as insurance company, land management company and so on. This was for both purposes, increasing sources of income and offering wider bouquet of services to depositors/investors.

The Bank came across this idea of a scheme which would help achieve both the objectives.  The bank would start a scheme to help its depositors to invest in stock markets and the bank would charge a fee for these services. As the idea was new, the bank did not open a new company but opened a new department within the bank called Investor Agency Department.

The organisation of IAD was different from today’s mutual funds. The bank would research stocks and send the list to depositors. The depositors in turn would invest in the stocks based on initial advice and suggestions by the bank. The Bank also acted as a custodian of the stocks given the small investors might not handle the certificates etc properly. The bank charged a fee for the advisory and custodian services.

This is unlike the model followed by UTI and mutual funds later. First there was a separate company/trust which would pool the savings of the investors. The trust was to be managed by professional fund managers who would then invest in stocks through their research and experience. The organisation was different but the idea was similar: provide a platform for the small investors who don’t have the expertise to access stock markets.

But then as Dr Bhatt notes, the scheme was objected by the RBI. Though, I don’t think the RBI objected on competition grounds. It was more to do with the fact that RBI wanted banks to just engage in banking business. This was also the time when banks were failing in large numbers. The non-banking business of banks was a constant source of headache for RBI and it had been asking banks to close their non-bank operations. Syndicate Bank’s earlier mentioned initiatives were also hived off to another entity or closed by the central bank. The central bank might have been weary of any more initiatives by the banks.

RBI History Volume (1951-67) while discussing formation of UTI has more insights:

Tracing the evolution of ideas about investment trusts in India, the study recalled Manu Subedar’s minority report as member of the Indian Central Banking Enquiry Committee (1931) in which he urged the creation of these trusts as vehicles for financing investment in industry. Manu Subedar’s plea was not altogether wasted, as the colonial government soon decided to exempt investment companies from super-tax.

Despite this concession, there were only a handful of such companies in India; and only two of them could be regarded as investment companies in the proper sense of the term. Many investment companies were promoted ‘only to collect public money … for employment to the advantage of the management and directors in their speculative activities’.

Investments of several such companies, the study emphasized, were concentrated in the shares of a few joint-stock companies which were often either ‘private companies’ or those whose shares were ‘not quoted on the Stock Exchanges’. Many investment companies, moreover, also counted direct loans and advances among their assets. The study found that the investments of a majority of these companies were not, by and large, ‘sufficiently diversified … or strictly disinterested’.

Only two investment companies, the Industrial Investment Trust associated with the stock-broking firm of Premchand Roychand and the Investment Corporation of India (controlled by the Tatas) held reasonably large and well-diversified portfolios of securities, the former having deployed over Rs 1.25 crores in 200 different securities and the latter Rs 3.5 crores in twice as many securities. Echoing the recommendation of the Shroff Committee, the article noted the wide scope that existed for large industrial or financial houses to form unit trusts.

The State, it suggested, should encourage the process and regulate the functioning of these intermediaries from the point of view of safeguarding the interests of their investors. Unit trusts, the article concluded, would help mobilize the resources of small savers for industrial investment and democratize industrial share-ownership as envisaged in the directive principles of the Indian Constitution.

Interesting to read name of Premchand Roychand come up again given he was seen as a central figure in the 1860s cotton and banking crisis in then Bombay. The crisis also led to brokers organising themselves to form Bombay Stock Exchange in 1875 in which again Premchand played a crucial role. It seems his broking firm could regain the lost trust fairly quickly and was mobilizing money from small investors.

One is also surprised RBI history not including Syndicate Bank’s IAD in the discussion. This is especially given the fact that RBI was behind closure of IAD.  The Bombay based  investment trusts must have had moneys of even big investors but Udupi/Manipal based Syndicate Bank’s IAD catered mostly (if not all) to small depositors/investors.

We really know very little about history of financial services in India. Whatever little, is mostly on banks. Others like insurance, fund management, venture capital etc are just given a miss. The financial history scholarship in the west is widely spread with scholars interested in all aspects of financial services.

One hopes to learn much more from these anniversaries such as the recent 25th year of private sector mutual funds.  They should not be allowed to just go like that.

It is a good time for the stock market regulator SEBI, to commission a study which looks at all these historic episodes of India’s fund management industry. More than anything else, it shows how the seeds of today’s trees were planted way back then through several ideas at work.

 

Douglass North, Shipping Productivity and Institutions: 50 years of his landmark paper…

July 20, 2018

We have been celebrating 50 years of Friedman’s landmark paper on monetary policy (1968).

In 1968, Douglass North also wrote a landmark paper looking at how shipping productivity had improved from 1600-1855. Interestingly, he shows that the productivity rose not because of technology but due to organisational developments.

Vincer Geloso reviews the North paper and how it influenced the subsequent thinking:

Douglass North is known largely for his work on institutions (1981; 1990; 1991; 2005; North and Thomas 1973; North, Wallis and Weingast 2009). This legitimate emphasis on this segment of his work overshadows his earlier contributions regarding the empirical measurement of the past. Yet, when awarding him the Nobel Prize in economics in 1993 (jointly with Robert Fogel), the Nobel committee justified itself by pointing to his “explanatory model for American economic growth before 1860” and his research on “productivity in ocean shipping”. Throughout his early career, North dedicated numerous articles and books to the topic of measuring economies in the past. Over time, these articles have been supplanted with richer empirical works, but it is necessary to realize how important these earlier works, especially the 1968 article on shipping productivity, were to shaping North’s later research agenda on institutions.

Nice bit..


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