70 Years On: Thoughts on Israel’s Imperfect Capitalism

Sami Peretz has a short piece on Israel’s 70 years of economic history which is quite similar to that of India.

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Income Inequality in France, 1900-2014

Thomas Piketty along with two more researchers figures inequality in his own country:

Bertrand Garbinti, Jonathan Goupille-Lebret & Thomas Piketty combine national accounts, tax and survey data in a comprehensive and consistent manner for France, to build homogenous annual series on the distribution of national income by percentiles, from 1900 to 2014, with detailed breakdown by age, gender and income categories over the 1970-2014 period. Their new series deliver higher inequality levels for the recent decades, because the usual tax-based series miss a rising part of capital income. Growth incidence curves look dramatically different for the 1950-1983 and 1983-2014 periods. They also show that it has become increasingly difficult to access top wealth groups with labor income only. Next, gender inequality in labor income declined in recent decades, albeit fairly slowly among top labor incomes. Finally, they compare the evolution of income inequality between France and the US.

It has some interesting charts which show the evolution of inequality. US has much higher inequality than France..

Cultural differences in monetary policy preferences

An interesting paper by Prof. Adriel Jost of Univ of St Gallen and Swiss National Bank.

The monetary policy preferences of a population are often explained by the country’s economic history. Based on Swiss data, this paper indicates that while different language groups may share the economic history, they demonstrate distinct monetary policy preferences. This suggests that distinct monetary policy preferences among the populations of different countries may be determined by not only their economic histories but also their distinct cultural background.

The author tries to figure the differences using several tests and datasets. For instance:

Evolution and experiences with inflation targeting in different countries..

Interesting conference and set of papers at recently concluded conference by Reserve Bank of Australia .

Reading keeps piling up.

The paper on New Zealand Inflation Targeting is important given NZ has added employment to its price stability mandate.

Stock investors on higher floors take more risks – here’s why

Academics try and link financial behavior to all kinds of things.

Prof Sina Esteky of Miami University (Marketing area) in this research links risk taking in finance to being located in higher floors:

Plurality in Teaching Macroeconomics

Prof Rohit Azad of JNU in this paper argues for plurality in teaching macroeconomics:

For economists, the Great Recession—the worst crisis the world has seen since the Great Depression of the 1930s—has highlighted the need for plurality in macroeconomics education. Ironically, however, there is a move towards greater insularity from alternative or contrasting points of view. Whereas, what is required for vibrant policymaking is an open-minded academic engagement between contesting viewpoints.

In fact, there does not even exist a textbook that contrasts these contesting ideas in a tractable manner. This pedagogical paper is an attempt to plug that gap by presenting a comparative study across different traditions in macroeconomics in a unified framework, which can be developed into a semester-long intermediate-level course.

Nice bit..

 

Do political parties matter for ethnic violence? The Congress and Hindu-Muslim riots in India

Interesting and fairly controversial research by three researchers -Gareth Nellis , Steven Rosenzweig and Michael Weaver.

The Congress Party in India makes the claim that it appeals to a wider multi-ethnic populace and tries to prevent the religious riots. What does the evidence show?

We find that in places where Congress narrowly wins in these closely fought races, Hindu-Muslim riots are much less likely to occur – and lead to fewer casualties – than in places where they narrowly lose. The effects are large. In fact, our analysis suggests that had Congress lost all close elections in our dataset, India would have experienced 11% more Hindu-Muslim riots (1,114 instead of 998) and 46%  more riot casualties (43,000 instead of 30,000) over the four decades we investigate.

Why did Congress incumbency have this effect? We find tentative evidence that electoral incentives hold the key.

Financial Benchmarks India Pvt. Ltd (FBIL): A new organisation to shape India’s government bond and forex markets

Economics textbooks that usually tell you that all you need is a buyer and seller for markets to work on their own. Financial markets are often cited as examples of such markets. But this is so far from reality. We need several systems and organisations to ensure financial transactions between buyer and seller. The so called stock exchange itself is not really a market as we know it but actually a firm which has several other supporting firms and “things” to facilitate the trades.

In this regard, it was interesting to see this recent press release from RBI.

Bank examiners’ expertise and their role in monitoring and disciplining banks during the panic of 1893

Profs Charles Calomiris and Mark Carlson in this paper (ungated older edition) figure whether bank examiners and their inspection add value:

Financial engineering will not stabilise an unstable euro area

Without the basics in place, Financial engineering can only delay the inevitable.

Profs. Paul De Grauwe and Yuemei Ji on fin engg in Euro area:

Temperature and human capital in India

Three researchers – Teevrat Garg , Maulik Jagnani  Vis Taraz – in this piece:

A large proportion of the population in India has agrarian livelihoods that remain climate-exposed. The number of hot days per year in the country are expected to double by the end of this century. This column shows that higher-than-normal temperatures in a particular year lead to a contemporaneous reduction in agricultural incomes, and large negative impacts on children’s human capital outcomes in the subsequent year. 

……..

We use math and reading test scores for more than 4.5 million children in primary and secondary school to examine the effects of higher temperatures on human capital production in India. Using data from an India-wide repeated cross-section² between 2006-2014, the Annual Status of Education Report (ASER), that tests school-age children on math and reading ability, we show that over a longer-run horizon, measured as the number of hot days in the calendar year prior to the test, higher temperatures affect both math and reading scores. Ten extra days in the previous year with average daily temperature above 29°C (84°F) relative to 15°C-17°C (59°F-63°F) reduces current-year math and reading test performance by 0.03 and 0.02 standard deviations³ (SD) respectively.

In fact, when we isolate effects by growing and non-growing seasons in India, we find that the effect of higher temperatures on test scores is primarily driven through higher temperatures in the previous years’ agricultural growing seasons, with comparatively negligible effects of non-growing season temperature. Ten extra days over 29°C in the previous year growing season reduces math and reading scores by 0.1 and 0.06 SD, respectively. These are large effects: these 10 extra hot days in the previous year growing season could effectively wipe out gains made from a median educational intervention (McEwan 2015), particularly when one considers that India currently experiences close to 50 days above 29°C.

Hmm..

The Gordon Gekko effect: The role of culture in the financial industry…

This is a brilliant paper by Prof. Andrew Lo of MIT. It was written in 2016 and somehow missed it all this while.

The paper is written for financial industry but applies to nearly all walks of life. I mean even applies to Australian cricket team which has shocked the cricket world with its conduct much like financial industry did after the financial crisis:

Culture is a potent force in shaping individual and group behavior, yet it has received scant attention in the context of financial risk management and the 2007-09 financial crisis. This article presents a brief overview of the role of culture as it is seen by psychologists, sociologists, and economists, and then describes a specific framework for analyzing culture in the context of financial practices and institutions. Using this framework, the author addresses three questions: (1) what is culture? (2) does it matter? and (3) can it be changed? He illustrates the utility of this framework by applying it to five concrete situations—the collapse of Long-Term Capital Management, the fall of AIG Financial Products, the use by Lehman Brothers of “Repo 105,” Société Générale’s rogue trader, and the Securities and Exchange Commission’s handling of the Madoff Ponzi scheme. The article concludes with a proposal to change culture through “behavioral risk management.”

 

Noam Chomsky on the Populist Groundswell, U.S. Elections, the Future of Humanity, and More

Chomsky is always intriguing to read and figure. His recent interview is nothing different.

This one sums up:

Lynn Parramore: You’ve been looking at politics and international relations for quite a long time. Over the decades, what are the continuities in these areas that stand out in your view?

Noam Chomsky: Well the continuities are the message of the Athenians to Melos: “the powerful do what they wish and the weak suffer what they must” [from Thucydides’ History of the Peloponnesian War”]. It’s often disguised in humanitarian terms. The modalities and the context change. The situations change but the message stays the same.

He says Republican Party is the most dangerous organisation in human history:

Video: Why Kerala has chosen the jackfruit as its official fruit

I had earlier blogged about how every bit of jackfruit can be utilised for something or the other.

Fittingly, State of Kerala has chosen it as a state fruit.

Did UK monetary policy spillovers to US during first age of financial globalisation (1880-1913)?

Food for thought post by Georgina Green of Bank of England (full paper here).

She questions the conventional wisdom that UK monetary policy led to monetary spillovers to US in the first age if globalisation. We think of it other way round in second age of globalisation. What is interesting is how she uses the archival material with econometrics:

Understanding cultural persistence and change

Paola Giuliano and Nathan Nunn on the topic. Their findings are fairly intuitive:

When does culture persist and when does it change? This column examines a determinant that has been put forth in the anthropology literature: the variability of the environment from one generation to the next. It finds that populations with ancestors who lived in environments with more stability from one generation to the next place a greater importance in maintaining tradition today, and exhibit more persistence in their traditions over time. 

 

Comparing Japan’s Lost Decade with the U.S. Great Recession

Guillaume Vandenbroucke of St Louis Fed has a nice piece.

He says that in Japan growth rate of GDP per capita slacked whereas in US the levels of GDP per capita declined:

Japan’s economy began its “Lost Decade” in the 1990s, with persistent slow growth and low inflation. One could argue, however, that the Lost Decade has persisted for nearly three decades.

In 2008, the United States entered into what is now called the “Great Recession.” The Great Recession was also characterized by slow growth and low inflation. These similarities between the Lost Decade and the Great Reces­sion have led many analysts to wonder whether the United States is in for the same persistent economic slump as Japan. 

In this analysis it is critical to draw a distinction between a change in the growth rate of gross domestic product (GDP) per capita and a change in its level. For instance, a country can experience a sudden decline in the level of its GDP per capita after a major recession, but its growth rate can remain constant. Conversely, a country’s rate of growth can decline without any sudden drop in the level of its GDP per capita. The Japanese data reveal that the Lost Decade is clearly a case of slow growth rather than of a sudden negative shock to GDP per capita. The U.S. data, slightly varied, reveal that the Great Recession is the opposite case.

The difference is that Japan will take much longer to double its income compared to US:

What insights do taxi rides offer into leakages of Federal Reserve decisions/policies?

This looks like a crazy bit of paper and could generate controversy.

It tries to link unusual taxi traffic around NY Fed area around FOMC days to some sort of information sharing between Fed and Commercial Banks.

The author David Andrew Finer tries to explain the complex linkages and teasing it from data:

The taxi data can shed light on one small sliver of Federal Reserve interactions: face-to-face meetings with individuals associated with the Federal Reserve Bank of New York (New York Fed, FRBNY). Insiders of the New York Fed and commercial banks can take black cars, the subway, and other modes of transportation, so I will obtain a lower bound. While monetary policy is primarily the purview of the Board of Governors in Washington, DC, the New York Fed plays an important role. It houses the Fed’s trading desk and supports decision-making by, for example, providing economic briefings. In addition to its actions as a regulator, the New York Fed regularly communicates with commercial financial institutions to obtain market commentary pertinent to monetary policy.

If one accepts the proposition that the Federal Reserve’s monetary-policy meetings in Washington, DC, impact interactions between insiders of the New York Fed and major commercial banks much more than interactions involving the businesses and residences around the New York Fed and those banks, one may identify significant changes in rides with significant changes in meetings relevant to this study. I cannot conclusively demonstrate a link between rides and face-to-face meetings, but evidence that individuals are in very close proximity to each other more often around FOMC meetings would complement more indirect evidence of regular informal communication presented in the academic literature. Given my limited observations, the magnitudes of the changes in meeting counts that I find should be viewed as lower bounds.

Need to read the fine print…

Seven fallacies concerning Milton Friedman’s ”The Role of Monetary Policy”

Edward Nelson says there are 7 common fallacies around Friedman’s paper – The Role of Monetary Policy – which celebrated 50 years recently.

This paper analyzes Milton Friedman’s (1968) article “The Role of Monetary Policy,” via a discussion of seven fallacies concerning the article. These fallacies are:

(1) “The Role of Monetary Policy” was Friedman’s first public statement of the natural rate hypothesis.
(2) The Friedman-Phelps Phillips curve was already presented in Samuelson and Solow’s (1960) analysis.
(3) Friedman’s specification of the Phillips curve was based on perfect competition and no nominal rigidities.
(4) Friedman’s (1968) account of monetary policy in the Great Depression contradicted the Monetary History’s version.
(5) Friedman (1968) stated that a monetary expansion will keep the unemployment rate and the real interest rate below their natural rates for two decades.
(6) The zero lower bound on nominal interest rates invalidates the natural rate hypothesis.
(7) Friedman’s (1968) treatment of an interest-rate peg was refuted by the rational expectations revolution.

The discussion lays out the reasons why each of these seven items is a fallacy and infers key aspects of the framework underlying Friedman’s (1968) analysis.

 

Should real estate agents charge fixed rent or flexible based on sale price?

Pieter Gautier, Arjen Siegmann and Aico van Vuuren analyse changes in Dutch regulations to figure the differences:

In 2005, flat-fee real estate brokers entered the Dutch housing market, charging a substantially lower up-front fee than the average traditional brokers’ fee based on sale price. This column uses house sale data to demonstrate that flat-fee agents sell properties faster, and at an average price that is 2.7% higher than traditional agents. This suggests that the profits of traditional brokers are at least partly driven by rents, rather than performance.

 Not surprised to read this really.