Evolution of Fed’s inflation target from 1.5% to 2%..

Adam Shapiro and Daniel J. Wilson of San Francisco Fed in this research trace the numerical value of Fed’s inflation target:

A narrative analysis of the historical FOMC meeting transcripts indicates that FOMC participants generally expressed a preference for an inflation target around 1½% from 2000 to around 2007. By the end of the Great Recession in 2009, however, the consensus had clearly shifted to 2%. This became the official target announced to the public in 2012. One plausible explanation for this shift is that hitting the zero lower bound in a low inflation environment brought the potential benefits of a higher inflation target to the forefront. As many academic studies and even FOMC participants have discussed, a higher inflation target could potentially lower the risk of hitting the zero lower bound in future recessions.

We also found that actual inflation from 2000 to 2007 was considerably above the 1½% consensus preferred target. Does this imply the FOMC failed in meeting its objectives during this period? Not necessarily. First, while FOMC participants may explicitly state in private their preferred rate of inflation, the committee’s monetary policy actions may be consistent with a different target. Second, the FOMC’s objectives may have included higher economic growth in addition to having inflation near its target, as found in Shapiro and Wilson (2019). With such multiple objectives, achieving higher growth over a given period could involve some trade-off with inflation being above target.

When and who mentioned inflation target first?

Discussions of explicit inflation targeting did not begin to appear in the FOMC meetings until around 1994. Before then, FOMC participants occasionally mentioned an objective of “price stability” without relating that to an explicit inflation target. One illuminating exception was a statement by Federal Reserve Board Governor David Mullins in the November 1993 meeting that suggested an implicit target moving below 3% by that time: “I think there’s a real payoff not just from stabilizing inflation in the 3–4% range but in moving lower.”

The first serious consideration of an explicit inflation target we could find comes from St. Louis Fed President Thomas Meltzer in 1994. At the July meeting that year, he said, “If we don’t make an explicit statement in this FOMC testimony with respect to our long-run expectations on inflation that goes beyond ‘we think price stability is good,’ and get more specific in terms of a target range, then at the very least I think we have to make it clear that we consider 3% inflation to be unacceptable.” A few meetings later, in November 1994, he stated: “I feel that it may be time for us to consider setting a specific inflation target that looks out into the future. I think, and this point was made as well, that it could make our job considerably easier in circumstances like the present—with upward cyclical inflationary pressures—if people were willing to look out to a longer-range target and that added to credibility.”

Hmm..

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Monetary Policy Transmission in Financial Markets: Evidence from India

Edwin Prabu (of RBI) and Prof Partha Ray  in this EPW paper:

In the Indian context, a key question is addressed: What has been the influence of monetary policy on different segments of the financial markets? Constructing a structural vector autoregressive model with the monetary policy rate, the pattern of monetary transmission to financial markets is examined over three distinct periods of regime changes in the Indian monetary policy and liquidity management framework. The empirical evidence indicates that there is sufficient period-specific transmission of monetary policy across the different segments of the financial markets. While the transmission of monetary policy to the money and bond markets is found to be fast and efficient, the impact of the policy rates on the forex and stock markets is limited.

Policy implications:

Monetary transmission is often implicitly seen to be a two-stage process whereby in the first stage monetary policy affects the different segments of the financial markets, and in the second stage, the impact of the financial markets gets transmitted to the real sector of the economy. The present paper looks into the first stage of this process.

Our results indicate that the impact not only varies across different segments of the financial markets, but it is also sensitive to the operating procedure of the monetary policy. Expectedly, our results find the primacy of the call rate in the money markets and are in consonance with the official RBI stance of treating the weighted average of overnight call money rate as the operating target of monetary policy. In particular, there is differentiation in the monetary policy transmission to the financial markets in India, being faster and persistent for the call and bond markets, to the least impactful for the forex and stock markets.

As far as the periodicity the transmission is concerned, in the first period (April 2005 to April 2011), the positive shock to the repo rate did not have any impact on the call money, while in both the second (May 2011 to June 2016, when the liquidity framework was fine-tuned with a clear operating target and introduction of term repo) and the third (July 2016 to December 2018, following the introduction of flexible inflation targeting) periods it was found to be quite high.

As already indicated, these impacts are the first stage impacts of monetary policy on financial markets. As is well known, monetary policy works through the Wall Street but wants to influence the Main Street ultimately. How can we link this story of financial markets to the real sector? This question remains unanswered in this paper and constitutes the agenda for further research.

 

Should civil servants be allowed to serve in their home areas? Evidence from India

Interesting research by Profs. Guo Xu (Berkeley Haas School of Business), Marianne Bertrand (University of Chicago) and Robin Burgess (LSE).

Our main finding is that officers allocated to their home state perform worse than comparable officers who are allocated to non-home states. On average looking across the entire nation, we find that officers allocated to their home states are deemed to be more corrupt and less able to withstand illegitimate political pressure. The extent to which home allocations worsen performance, however, varies substantially across states. Home-state officers perform worse in states that score higher on corruption as measured by the Transparency International score. Consistent with this subjective evidence we find that, in the more corrupt Indian states, home-allocated officers are more likely to be suspended primarily due to having court cases pending against them. 

…

These findings thus resonate well with the historical literature which highlights the tension between the need for local knowledge and the challenge of capture and clientelism in settings ranging from the administration of Empire to the allocation of modern-day civil servants and ambassadors. 

Perhaps more importantly, the results also have important implications for a whole host of less-developed countries that are in the process of building state capacity (Besley and Persson 2009). In these contexts, assigning officers back to environments which they are most socially proximate with may actually limit their ability to effectively serve the nation. This is an interesting result, as we know that such home avoidance rules run counter to the preferences of the officers themselves. While related research has suggested that rewarding performance with individually preferred postings may be an effective incentive mechanism (Khan et al. 2018), our results suggest that a policymaker may nonetheless seek to deliberately mismatch subordinates’ preferences and location assignments if their private gains are misaligned with public gains – in this case, due to greater likelihood of local capture.

Hmm..

How mobile telephones are fundamentally changing the profile of India’s imports…

Nice piece by Rekha Misra and Anand Shankar of RBI in the April-2019 Bulletin.

….mobile telephones are fundamentally changing the profile of India’s imports. The composition of India’s import basket has largely been dominated by gold and petroleum products. These two commodities, with a combined share of close to 40.0 per cent, have virtually defined the trajectory ofIndia’s overall merchandise imports.

In recent years, however, electronic goods imports increased from a little over US$ 0.9 billion in 1993-94 to US$ 51.5  billion in 2017-18, an annual growth rate of over 15.0 per cent. Consequently, the share of electronic goods increased from less than 4.0 per cent of India’s total merchandise imports to over 11.0 per cent during the same period. In fact, from 2013-14 onwards, electronic goods imports have had a higher share in merchandise imports than gold and currently constitute the second largest import item for India!

This article undertakes an incisive examination of the phenomenon of India’s electronic imports and implications for the viability of India’s external balance. Specifically, the article studies the behavior of imports of mobile phones and parts thereof which lie at the heart of the surge in electronic goods imports. It seeks to highlight the role of policy initiatives in driving the phenomenon and its composition, with longer-term implications for domestic production.

Hmm..

Illuminating economic growth using nighttime lights

Yingyao Hu and Jiaxiong Yao of IMF in their new research:

This paper seeks to illuminate the uncertainty in official GDP per capita measures using auxiliary data. Using satellite-recorded nighttime lights as an additional measurement of true GDP per capita, we provide a statistical framework, in which the error in official GDP per capita may depend on the country’s statistical capacity and the relationship between nighttime lights and true GDP per capita can be nonlinear and vary with geographic location. This paper uses recently developed results for measurement error models to identify and estimate the nonlinear relationship between nighttime lights and true GDP per capita and the nonparametric distribution of errors in official GDP per capita data. We then construct more precise and robust measures of GDP per capita using nighttime lights, official national accounts data, statistical capacity, and geographic locations. We find that GDP per capita measures are less precise for middle and low income countries and nighttime lights can play a bigger role in improving such measures.

Hmm..

Figure 1 in the paper explains further:

To illustrate such issues, Figure 1 compares satellite images of nighttime lights for mainland China, the lower 48 states of the United States, and Africa between 1992 and 2013. While all of them became brighter at night in 2013, China’s transformation was most visible. Variation in nighttime lights may thus contain useful information on China’s real economic growth. In contrast, the United States was already bright enough in 1992. The small change in the intensity of lights over this period may not correspond well to economic growth, most of which likely happened on the scientific and technological frontier rather than on infrastructure development. While the latter was captured by satellite, the former was certainly not. Most countries in Africa, despite their fast growth, started from low levels of income and inadequate access to electricity.

As a result, they were still mostly dark in 2013 and the information contained in nighttime lights may be insufficient for accurately assessing economic growth. Figure 1 highlights that the relationship between nighttime lights and real GDP may be nonlinear, that the relative accuracy of nighttime lights to real GDP may change, and that the extent to which nighttime lights are useful as proxy for real economic activity may differ over time and across countries.

Hmmm..

What economic factors are driving the tech firms to enter financial services?

Really nice paper by a team of authors: Jon Frost, Leonardo Gambacorta, Yi Huang, Hyun Song Shin and Pablo Zbinden.

We consider the drivers and implications of the growth of “BigTech” in finance – ie the financial services offerings of technology companies with established presence in the market for digital services.

BigTech firms often start with payments. Thereafter, some expand into the provision of credit, insurance, and savings and investment products, either directly or in cooperation with financial institution partners. 

Focusing on credit, we show that BigTech firms lend more in countries with less competitive banking sectors and less stringent regulation. Analysing the case of Argentina, we find support for the hypothesis that BigTech lenders have an information advantage in credit assessment relative to a traditional credit bureau. For borrowers in both Argentina and China, we find that firms that accessed credit expanded their product offerings more than those that did not. It is too early to judge the extent of BigTech’s eventual advance into the provision of financial services. However, the early evidence allows us to pose pertinent questions that bear on their impact on financial stability and overall economic welfare.

 

The rise of corporate market power and its macroeconomic effects

IMF has released the analytical chapters of World Economics Outlook for April 2019.

Chapter 2 is based on the hot research topic of today: The Rise of Corporate Market Power and Its Macroeconomic Effects

This chapter investigates whether corporate market power has increased and, if so, what the macroeconomic implications are. The three main takeaways from a broad analysis of cross-country firm-level patterns are that (1) market power has increased moderately across advanced economies, as indicated by firms’ price markups over marginal costs rising by close to 8 percent since 2000, but not in emerging market economies; (2) the increase has been fairly widespread across advanced economies and industries, but within them, it has been concentrated among a small fraction of dynamic—more productive and innovative—firms; and (3) although the overall macroeconomic implications have been modest so far, further increases in the market power of these already-powerful firms could weaken investment, deter innovation, reduce labor income shares, and make it more difficult for monetary policy to stabilize output.

The blogpost explaining the research is here.

The application of behavioural insights to retail investor protection

Interesting report by IOSCO (HT: Regulation Asia)

Building on that important research, this report provides a literature review and reports on the results of a survey of IOSCO C8 jurisdictions focusing on how behavioural insights could be, and are being, used to respond to the following questions relevant to retail investor protection (the “Topic Areas”):

• Disclosure design: How can we apply behavioural insights to the presentation of disclosures to optimize retail investors’ absorption of essential information and resulting behaviour, and to what extent does the answer to this question vary for different segments of retail investors and different product types?
• Online interfaces: Many entities provide online interfaces primarily directed at attracting investments from retail investors. What design features, such as layout, reminders, and warnings, can online interfaces incorporate to help investors make informed investment decisions?
• Timeliness of information: When are retail investors most receptive to relevant disclosure or educational content (e.g., when the investor begins a new job or is about to make key decisions about retirement)?

This report acknowledges that, while behaviourally-informed measures in these areas have the potential to promote informed investor decision-making, their potential comes with limits. 

Disclosure and information, no matter how well-designed and no matter how well-timed their delivery, may not be sufficient on their own to achieve comprehensive retail investor protection. Standards of conduct imposed on the investment professionals on whom retail investors rely to recommend and manage their investments, as well as the regulation of investment products sold to retail investors, will continue to be part of the comprehensive set of measures employed by regulators to further retail investor protection.

 

The international role of the euro: down but not out

Claudio Borio of BIS in this speech:

Much has been said about the role of the euro in the international monetary and financial system and about the currency’s prospects. And much of it is not particularly encouraging.

Some of what has been said is about the future. Based on the lessons of history, there is a broad consensus on the financial and political preconditions for making that future a bright one.2 One can only conclude from those lessons that the distance to travel is, to put it mildly, considerable. I can hardly add
anything of value to that aspect of the debate.

Some of what has been said has been about the evolution to date. Take the IMF’s tally of the share of official foreign exchange reserves denominated in euros. This shows a sizeable diminution, from about 25% in 2012 to some 20% recently.3 Moreover, the ECB’s composite index of the euro’s international
role paints a similarly unflattering picture.4 One might conclude from all this that the euro has lost clout across the board.

Today, I would like briefly to question this verdict. My thesis is that the verdict is too categorical – a more nuanced assessment is in order.

I would like to argue that, in some significant but underappreciated respects, the euro’s heft has actually grown in recent years. I shall highlight three aspects: the euro’s influence on global bond markets; its influence on exchange rates globally; and its influence on the “effective pricing“ of commodities, regardless of the currency in which their prices are actually denominated.

Interesting sets of graphs in the speech..

Ideas of Charan Singh (former Indian Prime Minister): the lone agrarian intellectual?

Prof Praveen Dhanda (Department of Political Science, Indraprastha College for Women, University of Delhi) in this EPW paper reflects on Charan Singh’s intellectual legacy:

Charan Singh’s intellectual practice has remained under-explored in the realm of the study of Indian intellectual traditions. At a time when development promises continue to elude agrarian and rural India, Singh’s ideas are worthy of serious attention because he presented a comprehensive critique of the development discourse in India from the perspective of agriculturists and the countryside. By noting why Singh’s written word should attract more attention, the paper goes on to mark the leitmotifs that may help one to navigate through Singh’s oeuvre. Further, it attempts to present an outline of three important developmental issues delved upon in Singh’s writings.

It is quite amazing to note how much Mr Charan Singh wrote and how his ideas differed from the mainstream…

The return of economic nationalism in Germany

Jeromin Zettelmeyer of PIIE in this paper points to how economic nationalism is rising in Germany and could stoke similar fears in Europe as well:

Germany’s new National Industrial Strategy 2030, unveiled by Economy Minister Peter Altmaier in February 2019, advocates an aggressive industrial policy. Although it stays clear of the virulent economic nationalism of the 1930s and the protectionism of President Donald Trump, its tone and much of its content are unmistakably nationalist.

Zettelmeyer concludes that three of Altmaier’s five proposals—attempting to further raise the German share of manufacturing, restricting non-EU imports of intermediate goods, and promoting national champions in Germany and the European Union—are bad policies. The two remaining ideas—preventing some foreign takeovers and ramping up state support for certain technologies—are somewhat easier to justify, based on either market failures or the risk of technological dependence on foreign companies susceptible to political interference.

But even in these areas, the specific policies proposed may well do more harm than good.

Hmm..

International Conference on Indian Business & Economic History in Memory of Prof. Dwijendra Tripathi

IIM Ahmedabad will be hosting an international conference on Indian business and economic history in memory of Prof. Dwijendra Tripathi on August 29-31, 2019.

Here is the notice for Call for Papers:

The conference invites researchers to submit research papers and ideas to two separate tracks of the conference – PhD Student Workshop and Conference Research Papers.

PhD Student Workshop

The conference will commence on Thursday, August 29th , with a 1-day workshop for PhD students working on Indian business or economic history or keen to explore this research interest in the near future. Students may belong to any disciplinary background. The workshop will provide feedback on the student’s research topics and ideas and have sessions conducted by leading scholars of the field.

To apply, students have to email history19@iima.ac.in, their CV, one-page synopsis of their ongoing research and a one-page statement of interest to attend the workshop, before April 30, 2019.

Students from within and outside India are encouraged to apply for the workshop. Women and students from historically marginalized communities are particularly encouraged to apply for the workshop. MPhil and Masters’ level students can also apply if they are able to demonstrate their keenness to work in the field, and the application would require an additional reference letter from their research supervisor.

Selected students will be notified about their applications by May 10, 2019, and are expected to participate in all three days of the conference proceedings. The workshop is fully-funded and covers three days of accommodation and food on the IIMA campus. It also covers the cost of travel to IIMA, not exceeding Rs. 10,000 per participant.

Conference Research Papers
The conference theme is broad with the following suggestive themes covering the Indian subcontinent in the 19th and 20th centuries,

• • The legacy of colonial and princely states on economic development
  • Regional variations in development in historical perspective
  • Urban histories
  • Sector wise histories: eg. Aviation, Media, Advertising, Finance, Real Estate, Coal, etc.
  • Firm level histories
  • Entrepreneurial histories
  • Management histories
  • Histories of business associations
  • Technology transfer and international collaborations

The conference also invites research spanning other time periods and topics.

A 500-1000 word abstract with title and participant’s affiliation, should be submitted to history19@iima.ac.in , before April 30. Selected speakers will be notified by May 10, 2019, and full research papers are expected to be submitted by August 1, 2019. For the selected speakers, two days of accommodation and food related expenses at IIMA will be borne by the conference organizers.

 

The return of the policy that shall not be named: Principles of Industrial Policy

What a title of a research paper: The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy!

IMF economists Reda Cherif and Fuad Hasanov in this research paper:

Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.

Hmm.. Looks like a good read.

Gulzar had earlier posted that industrial policy is coming back:

How failing banks paved Hitler’s path to power: Financial crisis and right-wing extremism in Germany, 1931-33

Sebastian Doerr, José-Luis Peydró and Hans-Joachim Voth in their research:

Polarised politics in the wake of financial crises echo throughout modern history, but evidence of a causal link between economic downturns and populism is limited. This column shows that financial crisis-induced misery boosted far right-wing voting in interwar Germany. In towns and cities where many firms were exposed to failing banks, Nazi votes surged.

In particular, places exposed to the one bank led by a Jewish chairman registered particularly strong increases of support – scapegoating Jews was easier with seemingly damning evidence of their negative influence.  

Check out this cartoon:

Figure 5 1931 Nazi cartoon showing a Jewish banker hanging the German businessman

 

Note: From Der Stürmer. The caption reads “The Jewish banks and the German Businessman”.

Independent monetary policy versus a common currency: case of Czech Republic

Interesting research by Jan Br˚uha and Jaromír Tonner of Czech National Bank.

The Czech Republic joined the EU in 2004, i.e. after 1993, and it is therefore obliged to adopt the euro sometime in the future. Obviously, euro adoption would have its benefits and costs. This paper aims to contribute to the macroeconomic analysis of the costs and benefits. By “macroeconomic”, we mean those costs and benefits which are related to business cycle fluctuations, to positive trade effects and to the nominal convergence of the Czech economy. We therefore do not investigate other costs and benefits, such as the change of legal tender, the change in the country’s credibility after adopting the euro and the costs of potential fiscal free riding by other member countries. This is not to say that these other aspects are not important, but this paper concentrates on the above-mentioned well-defined aspects of euro adoption.

The main macroeconomic benefit of adopting the euro is the elimination of exchange rate risk, which should be beneficial to trade, as the euro area countries are dominant trading partners for the Czech Republic. The macroeconomic costs include a reduction in the effectiveness of domestic macroeconomic policies and the risk of greater volatility in economic activity and consumption due to the loss of independent interest rate and exchange rate policy. This is because the common  monetary policy of the ECB cannot respond sufficiently to shocks which affect only a small part
of the euro area economy. The relative importance of the costs and benefits of adopting the common currency is ex ante unclear and the literature offers conflicting results. Therefore, it is worth investigating the macroeconomic costs of joining the euro area.

To contribute to this research agenda, we use simulations performed using the CNB’s official “g3” macroeconomic forecasting model, which is a typical small open economy new Keynesian model. As a counterfactual, we build a modified version of the g3 model with a fixed nominal exchange
rate and with the monetary policy rate equal to the ECB rate.

To evaluate the effects of euro adoption on the Czech economy, we employ two approaches. We compare the unconditional volatilities of important macro variables implied by the two macroeconomic models. The volatility of nominal variables increases after joining the common currency, as the common monetary policy does not react to purely domestic shocks.

We also simulate the counterfactual outcomes of macroeconomic variables that would have happened if the euro had been adopted in the past. We find that euro adoption would have meant an increase in the volatility of macroeconomic variables, while the effects on the levels of real output and consumption would have been positive. These positive effects on the real economy are due  mainly to the trade effect, but temporarily lower real interest rates would also have contributed. Nominal exchange rate appreciation during the ERM II phase could partly alleviate the nominal volatility caused by euro adoption.

Hmm..

Bringing epistemology back into economics curriculum..

Fascinating short paper in EPW by M.A. Oommen, honorary fellow at the Centre for Development Studies, Thiruvananthapuram.

The concept of epistemology, derived from the Greek word episteme (knowledge) and logos (reason) refers to the theory of knowledge. An important branch of philosophy, it is the study of the nature, origin and limits of human knowledge. The nature of knowledge is as important as the origin of knowledge in generating relevant epistemology.

No scientific study can be evaluated or justified by the norms of faith or dictates of authority. For example, the discoveries of Copernicus (1473–1543) and Galileo (1564–1642) were epistemologically shocking to the College of Cardinals who had the monopoly of knowledge in the 16th century in Europe. Ultimately only scientific truth and not beliefs can promote and sustain progress. Kuhn’s (1962) view of the evolution of science as characterised by long periods of gradual “puzzle-solving normal science” followed by paradigm shifts offers an explanatory hypothesis about the nature of knowledge creation. Ola Olsson (2000: 254) argues that knowledge is created through convex combinations of older ideas and through paradigm shifts. We investigate in what manner this happened in economics.

The nature of knowledge creation in the discipline of economics, has not been subjected to any in-depth analysis or interrogation. The almost unquestioned dominance (certainly during 1980–2008) of neoclassical economics in the academic profession and the rather pathological antipathy to Marxian epistemology and institutional economics has not been subjected to proper scrutiny. What I am concerned here is not Marxism as a creed but Marx’s unique contributions to the knowledge of understanding the dynamics of economic progress and the nature of the process of social history.

On economics curriculum in India:

Challenges to Indian Fiscal Federalism

It is not too often that one gets to see Finance Minister of a State (even at centre) writing a research piece in EPW. Kerala’s Finance Minister T.M. Thomas Issac (who holds a PhD from CDS) coauthors a piece on fiscal federalism along with R Mohan and Lekha Chakraborty.

They say not all is well in India’s fiscal federalism with States on the wrong side of the equation:

Are we quite far from what cooperative federalism envisages? Assessing the trends in tax devolution, the experience with the FRBM acts in the light of the recommendations of the FRBM review committee, the structure of GST, the ToR of the Fifteenth Finance Commission, and the obstacles in the decentralisation process, the hypothesis cannot be rebutted.

As revealed by many studies, the performance of tax revenue in India is below its potential. This limits not only the spending capacity of the centre, but also the amount of taxes devolved to the states. Besides, what is constitutionally sought to be devolved to the states is not being done in its spirit by the centre, which imposes surcharges and cesses as a means of raising revenue, without the same being part of the divisible pool of taxes shareable with the states. There also exists non-transparency in the computation of net proceeds.

The FRBM acts have imposed an asymmetric burden on the state governments in the face of non-compliance to the targets by the central government. This is sought to be accentuated by the recommendations of the FRBM Review Committee, 2017. The rate apportionment and voting rights in the GST Council are not in accordance with the principles of cooperative federalism, in which decisions are to be taken by a consensus among equal stakeholders. The decentralisation of the LGs is impeded by the asymmetry in centre–state relations.

The ToR of the Fifteenth Finance Commission, which is the last in the chain of events, hastens the process of centralisation and if implemented, cooperative federalism would only exist in name, devoid of any content whatsoever. Fundamental changes are needed to make cooperative federalism a meaningful and functioning one.

The authors point to some interesting fiscal trends.

 

First conference on women in macroeconomics

The conference on women in macroeconomics was organised last year.

Twenty-five women economists met May 17-18 at the University of California, Santa Barbara, for the First Women in Macroeconomics Conference. Alessandra Fogli, senior research economist at the Minneapolis Fed, was a conference co-organizer. Doireann Fitzgerald, also a Minneapolis Fed senior research economist, presented her research on “How Exporters Grow.” And Minneapolis Fed monetary advisor Cristina Arellano was a discussant on international macro. We sat down with these three Minneapolis Fed economists to learn more about this groundbreaking meeting. Comments have been edited for length and clarity.

Doireann Fitzgerald says:

Male economists rarely walk into the room and think, “Oh, I’m in a minority here.” Most of us have that experience every single time we go to a conference, and other sorts of minorities have that experience too. Maybe it doesn’t stop you from doing your job, but it’s kind of an eye-opening moment to walk into the room and see and feel that you are actually in the majority. This looks different. I was involved in organizing a conference several years ago, and when we realized it was 50/50, that was also sort of an eye-opening moment because it is not the norm.

 

Mumbai’s blinkered vision of development: sacrificing ecology for infrastructure

Prof Amrita Sen and Harini Nagendra of APU in this EPW research:

Drawing on a discussion of five infrastructure projects in Mumbai, the lack of comprehensive focus in policy on environmental issues is highlighted. A project-wise focus and an unsustainable pattern of urbanisation have distanced the city development plans of Mumbai from achieving essential, interdependent goals of ecological health, environmental justice, and well-being.

Applies to most cities in India.

Assessing possible causes of shortfall in GST revenues and its implications

Prof Sacchidananda Mukherjee of NIPFP writes a useful paper on GST.

He says there is a possibility of shortfall in revenues from GST based on budget accounts. This could have wider implications:

a) Upto June 2022, revenues of states under GST are protected. So far there will be no impact on State Finances on account of Own Tax Revenue collection. However, if the GST revenue shortfall continues, Union Government will face fiscal stress and it will spillover to state finances in terms of lower tax devolution and grantsin-aid transfers.

b) The estimated shortfall in GST collection is Rs. 197,210 crore or 8.77 percent of Gross Tax revenue in 2018-19. If the share of states in central transfers (on account of tax devolution and grants-in-aids) remains unchanged at 55.4 percent of GTR, the expected fall in central transfers would be Rs. 109,254 Crore in 2018-19.

If states do not increase their revenue mobilization, they may require containing their expenditures to meet the FRBM targets. There may be demands from States to give relief from the FRBM targets, so that they could continue with present level of expenditures. It may build up public debt and may cause stress on state finances in future.

Hmmm..

It also discusses the impact on State Finance after GST Compensation Period is over..