Archive for the ‘Blogs to Read’ Category

Adam Smith and Pin-making: Some Inconvenient Truths

August 25, 2022

Prof Timothy Taylor on his fab blog conversable economist says smith’s pin factory example is not a great example of gains of division of labour:

One of the famous anecdotes in economics is about division of labor in a pin factory, as told by Adam Smith starting in the third paragraph of The Wealth of Nations. (One suspects the fame of the story is partly related to the fact anyone who cracks open the book will find it at the very beginning.) Smith notes in the text that his example was already common at the time he used it. But those who specialize in this area have pointed that Smith’s example was based on second- and third-hand reporting, while actual studies of pin-making in the 18th century suggest that it may not be a great example of the gains from division of labor.

Read the post for more details.

Ideas on revising the Bank of England’s mandate and changing the way monetary policy is pursued in the UK

August 12, 2022

Costas Milas in this blogpost on LSE business review blog –

As UK inflation, currently at 9.4% and heading for 13%, is much higher than the official inflation target of 2%, Liz Truss is accusing the BoE of having been too slow to increase interest rates. Costas Milas argues that, 25 years since the Bank of England was given operational independence, it makes sense to revisit the issue of the bank’s mandate and look at things that can get better, as long as changes do not compromise the bank’s independence.

If boe’s mandate is revised, it will be another churn in history of monetary policy frameworks

Hurtling to 80 and beyond: Netaji’s weight vs Indian Rupee

July 29, 2022

Manasi Phadke in another humor-filled column:

The Rupee valuation and Netaji’s weight have been both breaching the 80 mark. Clever Guptaji is worried about the former whilst Netaji is busy worrying about his weight. Read the conversation that never happened about hurtling to 80 and beyond in my humour column Tweakonomics 2.0 in the Hindu Business Line! Pasting it here for you! Enjoy!

Hilarious!

Scottish Enlightenment vs. Irish Enlightenment

July 4, 2022

In an earlier post Tyler Cowen had written on Irish economics and economists.

He follows up with a post on Irish enlightenment and compares it with Scottish enlightenment:

The Scottish Enlightenment seems like a real enlightenment to most observers, the 18th century Irish Enlightenment (Swift, Berkeley, Burke, toss in James Barry too) does not.  In my admittedly unorthodox view, I think the Irish Enlightenment simply had different concerns but was no less of an enlightenment.  Much of the Scottish Enlightenment was concerned with the following:

1. Increasing market size and division of labor

2. Martial virtue and security against foreign enemies

3. Sympathy

That all makes broad sense when you realize that Britain was indeed building the world’s largest economic market, and furthermore had to worry about its enemies on the Continent.  Regular social interactions were becoming normal enough that one could ask basic questions about sympathy, and assume that some degree of sympathy was present.

None of those conditions held true for Ireland.  Market size was small, and external market relations typically were controlled by the British.  As for military issues, Britain could dominate you in any case, so martial virtue was of secondary import, at least until later civil wars.  And sympathy was not to be assumed at all, for reasons of religious, political, and class prejudice.

My “standing on one foot” version of the Irish Enlightenment would be a concern with:

1. Is toleration at all possible?  Toleration needed before sympathy!

2. Can we expect there to be progress at all?  James Barry argues for the universality of progress, but Swift doubts whether moral progress is likely.  Burke wishes to take progress in baby steps.  Berkeley is skeptical altogether.  If you are ruled by the Brits, the richest society to date, but they are still bastards to you, maybe you will be more skeptical about moral progress.

3. A sense of terror from difference, as mirrored both in Burke’s aesthetics of the sublime and the voyages in Swift’s Gulliver’s Travels.  Everyone is running around deeply afraid of “the other,” and this concern surfaces also in Burke’s fears for the French aristocrats.  The enthusiasms of the French revolutionaries reminded Burke all too much of the earlier Irish civil wars and rebellions and massacres, even though in both cases he knew the privileges of the nobles were not deserved.  Swift is consistently asking whether one culture can understand the other at all.

…..

Overall, the Irish Enlightenment wasn’t nearly as optimistic as its Scottish counterpart.  But it was far more mindful of the perspective of the victim, presaging more modern developments.  And later in the 19th century, the Irish Enlightenment turned its attention to themes of depopulation and excessively high land rents, both extremely relevant to current times as well…

The Irish Enlightenment is, dare I say, underrated?

  Hmm…

250 years of the first global credit crisis

June 29, 2022

Stein Berre, Paul Kosmetatos, and Asani Sarkar of NY Fed in this post:

June 2022 marks the 250th anniversary of the outbreak of the 1772-3 credit crisis. Although not widely known today, this was arguably the first “modern” global financial crisis in terms of the role that private-sector credit and financial products played in it, in the paths of financial contagion that propagated the initial shock, and in the way authorities intervened to stabilize markets. In this post, we describe these developments and note the parallels with modern financial crises.

…..

Intense as the twin panics of 1772-73 were, authorities were able to stabilize markets and restore confidence in the economy. These events resulted in a larger role for the institutional infrastructure of finance, focused around central banks and other state institutions, and created a set of financial stabilization techniques that are still in use today. The availability of these new tools was fortuitous, since Europe was entering the period of the most profound changes in economic growth and capital investment in human history. 

Yoga day at central banks across the globe

June 28, 2022

Manasi Phadke in her humor column at Business Line looks at how few central banks are doing different Yogasanas:

  • ECB  – Vinyasa Yoga
  • Fed – Power Yoga
  • RBI – Iyengar Yoga
  • State Bank of Pakistan – anti-gravity yoga
  • People Bank of China – Yin Yoga
  • Russian Central Bank – Hot Yoga
  • Sri Lanka central bank – Hath yoga

Read the article to find out why. 🙂

 

 

From 1980s Debt Crisis to Crypto Era: Changes in IMF’s Financial Stability Monitoring and Reporting

June 24, 2022

Tobias Adrian, Fabio Natalucci and Mahvash S. Qureshi in this IMF blog post look at financial stability since 1980s debt crisis. They also point how IMF’s reports on financial stability have changed with times.

Monitoring the health and outlook of the global economy and member countries is the bedrock of the Fund’s work. This surveillance role, outlined in amendments to our Articles of Agreement first adopted at the 1944 Bretton Woods Conference, charges us with overseeing and safeguarding the international monetary system.

In the early years, surveillance focused on the macroeconomic and exchange-rate policies of member nations, but growth in international banking in the early 1970s highlighted a need to better track global capital markets and assess financial-stability implications. Consequently, the Fund started discussions with monetary authorities in major financial centers and in 1974 initiated internal reports on market developments and prospects.

Starting in 1980, the report known as International Capital Markets became our main vehicle to monitor conditions in financial markets, warn of risks, and analyze disruptions like Latin America’s debt crisis of the 1980s or Europe’s exchange-rate mechanism crisis in the early 1990s. But that era’s rapid expansion and integration of global capital markets, and the ensuing financial crises in Asia and several other emerging markets, highlighted the need to better assess systemic risks.

The introduction of the Global Financial Stability Report marked an important step toward a more comprehensive and frequent assessment of cross-border capital flows and financial market risks. In his forward to the first GFSR, the then-Managing Director Horst Köhler noted how the report had its roots in crisis.

“The rapid expansion of financial markets has underlined the importance of a constant evaluation of the private sector capital flows that are the engine of world economic growth, but sometimes at the core of crisis developments as well,” he wrote. “Opportunities offered by the international capital markets for enhancing global prosperity must be balanced by a commitment to prevent debilitating financial crises.”

 

 

Similarities between Rafa Nadal’s 14th French Open victory and India’ Wholesale Price Index

June 13, 2022

Manasi Phadke, one of my favorite economics writers  is back to blogging. Manasi has this wonderful talent of explaining economics and economic events around us in a fun way.  Her profile is “ brave economist trying to laugh against the odds.”  🙂

In the comeback post, Manasi compares Nadal’s 14h Roland Garros win with Wholesale Price Index which has been hovering around 14% too:

What does Rafael Nadal have in common with the Wholesale Price Index of India (WPI)? A lot! For starters, both have crossed the 14 mark, the former at Roland Garros, and the latter in India. Both have huge teams backing them to move away from 14 – errr, albeit in opposite directions. Aggressive Serbians put both into a tizzy! Fortunately for Nadal fans and unfortunately for Indians, both look fairly unstoppable at 14.

She says WPI is divided into three categories: i) primary articles, ii) fuel and power, and iii) manufactured articles.

Rafa Nadal too has a WPI: Winner Potential Index:

Rafael Nadal too has a WPI – a Winner Potential Index. This index number tracks the potential that Nadal can win against any other opponents in a Grand Slam final at Roland Garros. The index, never released in the public domain, is a closely guarded number within Team Nadal. The index categorizes opponents into 3 main classes – i) primary challengers, ii) muscle and power, and iii) miscellaneous threats.

The primary group is further sub-divided into pure brilliance and Roger Federer. Federer is important enough to be tracked separately. ‘When Federer has these patches of utter brilliance, the only thing you can do is try and stay calm, wait for the storm to pass. There is not much you can do when the best player in history is seeing the ball as big as a football and hitting it with power, confidence, and laser accuracy.’ 

The muscle and power group contains Novak Djokovich. The wily Serb flexes brain muscles as quickly as the rest of his body. ‘He is a machine. He’s doing very well mentally everything’. 

The miscellaneous group contains a variety of players such as Puerta, Söderling, Ferrer, Thiem, Stan Wawrinka and Ruud. The wins averaged across the 3 classes should give the overall winning potential for Nadal at Roland Garros. However, a simple average will not suffice! If a win against Roger Federer, say, requires double the effort and concentration and creates (considerably more than) double the cheer as compared to winning against another player, then this win would mean a lot more to Nadal.

The WPI has to reflect this reality. Hence, each of the classes within the index is given a ‘weight’ based on the number of wins against the player as a proportion of total wins (14) till the current year i.e. 2022-23. Of the 14 wins of Nadal at the Roland Garros finals, 4 are against Federer, 3 against Djokovich and 7 against the others. Thus, for Nadal’s WPI, the primary, muscle power and miscellaneous threats have a weight of 28 per cent, 21 per cent and 51 per cent respectively.

The overall WPI is calculated as a weighted average of wins from all of the classes.

In 2022, it was Novak in the muscle power group who was seen to be the major trouble-maker at Quarter Finals. Challenges from the primary group were relatively calm, with Federer not playing in the French Open this year at all.

Phew.

Finally:

Forget the Russian conflict. Don’t worry about oil. Don’t even think about wheat. There are still two more Grand Slams left in this year’s season. Nadal is in top form. The RBI better watch out.

Manasi is in top form too. Hope she maintains it!!

In another comeback post, Manasi writes “Wheat Nikala, Gaddi leke” based on the famous song in the movie Gadar: Mein Nikla, Gaddi leke..:-)

 

How easy is it to understand central bank publications?

May 17, 2022

I wrote about RBI’s communications last week asking whether people/markets understand what RBI says?

Timothy Munday of Bank of England in this Bank Underground post asks similar question related to Bank of England:

How easy is it to understand this sentence you are currently reading? How easy it is to understand this sentence that has dependency arcs that are longer that make it more difficult to read? How about if my writing is magniloquent? Or what if I use normal words? Writing style matters for how easy it is to read text. This post asks if writing style can influence how long markets take to digest Bank of England monetary policy information. I find that Bank of England publications that summarise their content in the first sentence, and use less unexpected vocabulary, are associated with a faster time for swap markets to reach a new equilibrium price following the publication release.

The Monetary Policy Report (MPR), Minutes and other publications have material effects on asset prices (Hansen, McMahon and Tong (2019). But these moves in asset prices may take hours (or days) to materialise. The November 2021 MPR was 56 pages long. That publication was released simultaneously with the Minutes, which was 15 pages long. Subsequently, there was an hour long Q&A, the text of which was 14 pages long when transcribed. In other words, markets received a deluge of information. That information will only be fully reflected in asset prices when market participants have had time to read and digest the publications.

A discussion of what the Bank of England’s Monetary Policy Committee (MPC) chooses to say in these documents is well above this author’s pay grade. It is the result of a long process of deliberation by the MPC and staff. The content of that discussion, the outcome of the MPC’s decision, and the reasons behind it, are taken as fixed.

How the MPC chooses to communicate is a different issue (and indeed has been discussed on this blog before). This post asks if writing style can influence how long markets take to digest Bank of England monetary policy information. In other words, if the Bank of England writes more clearly, does that lead to a faster time for market prices to move to a new equilibrium?

His analysis shows simpler communications do help:

There are two features that are significant at the 5% level and two at the 10% level.

Documents with higher contextual expectancy, first lines that summarise the entire document, words that are more prevalent, and are published on days without a monetary policy decision are associated with a shorter time for the market to reach a new equilibrium.

The length of dependency arcs, the initial market reaction, and, interestingly, the length of the document, do not display any association with the time taken for the market to digest the Bank’s information.

….

The above analysis comes with several caveats, and so our results should be read in with them in mind.

Only correlations between some (handpicked) textual features and how long it takes for the market to settle have been presented. And, of course, correlation doesn’t imply causation. Indeed, there are plausible omitted variables: one could argue that if the Bank of England has a more complicated message to convey, it must write in a more complicated style.

Furthermore, the estimates of how long it takes the market to digest communication are simple, and influenced by news releases that occur after the publications (although these should only add noise to the estimates, not bias them).

Finally, the small sample does mean that the regression lacks power. Coefficients that just dip under a 5% or 10% significant level should not be over-interpreted.

These caveats notwithstanding this is initial evidence that writing style matters, adding to the existing body of work on this topic from the Bank of England (Haldane and McMahon (2018)Bholat et al (2018). Of course content matters, and the Bank of England’s message is of paramount concern when drafting communication. But, at the margin, when that message’s substance has been formed, the style it is presented in can help the market to understand it quicker.

There is one central lesson behind writing: write as simply as possible. This lesson applies to central banks too.

The IPL and the Benefits of Competition

May 11, 2022

Nice blogpost by Ashish saying how he was wrong about IPL and the League has transformed Indian cricket.

I somehow never really had a view on whether IPL will harm or benefit cricket. I did see it is a very different type of cricket where one can watch without really being nervous as is the case in a typical match played by Indian team. I also did see how really young Indian players were rubbing off shoulders with global players which would surely help them boost their confidence. This was best seen in the iconic India-Australia series played in Australia in 2020-21 where India beat the top Australian side with a second string of players. Most of the Indian players had already played with most of the Aus players in IPL and were not just not intimidated. The overall Indian performance overseas has improved leaps and bounds and IPL has played some role there.

Coming back to Ashish’s blogpost, he says it is a good idea to study principles of economics by watching and discussing IPL. I agree! IPL teams have a lot to offer for helping understand economics, business, management etc. IPL has given hope to having careers in sport management and economics.

 

GDP vs. GNP: Which is a better measure of future economic prospects?

April 13, 2022

Tyler Cowen on MR Blog:

As a metric of how well economes are doing, gdp is underrated, as I argue in my latest Bloomberg column.  Here is one bit:

If a nation has a lot of foreign direct investment, as does Ireland, GDP will exceed GNP by a considerable amount. According to the Irish government, the country’s GDP is about 370 billion euros. Its GNP is less than 300 billion euros. The difference in GDP and GNP is largely accounted for by the outflow of profits to foreign-owned multinationals.

This isn’t just a story about Ireland. Many other nations have had significant differences between their GDP and GNP, including many developing nations and, at times, Singapore.

The conventional wisdom is that GNP is the proper measure of living standards, because domestic citizens do not have claims on the profits of foreign multinationals. That isn’t wrong, but it is also an incomplete answer. When it comes to the future prospects of a country, GDP is a better indicator. Countries that have a high ratio of GDP to GNP are especially promising, though there are some caveats.

A relatively high GDP is a sign that a large number of foreign companies view the future of the domestic economy as bright. They are “putting their money where their mouth is.”

In the case of Ireland, the country is now the only member of the European Union in which English is the main language not only for business but also for schools and public life. Foreign investors are drawn by that fact. They also see that Ireland is relatively underpopulated, and appears to be receptive to absorbing talented foreign immigrants. Furthermore, Ireland is ruled by mainstream parties and seems largely unaffected by the populism and nativism that are creating problems elsewhere in Europe.

All these realities are reason to be bullish. It is also reasonable to expect that the Irish government will be relatively friendly to business looking forward.

Note this:

There are also countries in which GNP is much higher than GDP, such as East Timor during its times of receiving lots of foreign aid. I regard that as a bearish sign, just as I regard the higher GDP number as a bullish sign.

Hope I get to visit East Timor some day!

 

Decling research output at Reserve Bank of New Zealand

January 21, 2022

Croaking Cassandra Blog writes on the declining research output at RBNZ:

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Mostlyeconomics blog in 2021: Decline in viewership and posts

December 31, 2021

Today is the last day of the year 2021. Here is a quick review of the mostlyeconomics blog in the year 2021:

  • Views – 1,14,551
  • Visitors – 82,383
  • Posts published – 721

Top 5 posts

Both the viewership and number of posts have declined compared to 2020:

  • Views – 2,23,823
  • Visitors – 1,58,465
  • Posts published – 820

Infact the viewership and number of posts are at their lowest since 2012.

2021 was a very tough year and was difficult to  post regularly. Thanks a lot to all the visitors and well-wishers who have visited the blog in the difficult times. Highlight for the blog was its inclusion the Library of Congress Web Archives.

But then I must not complain as the viewership and posts since the blog’s inception look really good:

  • Views – 35,66,872
  • Visitors – 14.99,557
  • Posts published – 11428

Hoping for a better 2022 for all of us.  In case the visitors have feedback/suggestions on improvement, please send your feedback.

Watching economics on TikTok

December 30, 2021

Tyler Cowen on the MR Blog:

For my latest Bloomberg column, I ran the experiment of typing “economics” into the TikTok search function, and here is what came up:

The first video I saw was about the high pay of economics majors in the job market, relative to softer majors. The speaker has a strange British accent, and it is possible that he was deliberately trying to look and sound stupid. It has been liked more than 32,000 times. The next was a rant about the outrageous price of beer at sporting events. There is no obvious intelligence or analysis in the video. It has been liked almost 32,000 times.

I also saw a video called “Why I left economics,” in which a student who took an economics class at Brown explains how his professor taught about inequality but lived in a mansion with servants. He argues that economics as a subject distracts our attention from “what the **** we’re supposed to do.” The number of likes exceeds 258,000.

I watched a video of a woman loudly sighing in relief as a caption explains she has just dropped her economics class. Likes: more than 22,000. Then there was one mocking the idea of being an economics major, calling it another religion and suggesting the demand for economist friends is quite low. It had more than 34,000 likes.

But I am not upset at TikTok:

I think of TikTok as a useful wake-up call for economists.

First, TikTok is one of the dominant modes of presenting and debating issues and ideas, including economics, yet it is hardly used or even discussed by professional economists. (University of Houston Professor Chris Clarke is a notable exception.) Economists are ignoring the market signals — to our own detriment.

Second, TikTok’s preoccupation with the status and morality of economics exists beyond TikTok. TikTok offers economists a view of ourselves as much of the world sees us. We are judged not for our analytics, but rather by how we fit into various moral codes. Like it or not, that is something we economists have to come to terms with. Maybe we should thank TikTok for making this so clear.

Recommended.  And whether or not you like TikTok, you all should be spending a non-zero amount of time with it.

Hmm..

The US Library of Congress begins to archive Mostly Economics blog

December 30, 2021

In 2018, the US Library of Congress (LOC) started Economics Blogs Web Archive for digital archiving of economics blogs.

The goal of the Economics Blogs Web Archive is to capture current economic research and original thought as reflected in the blogs by professors of economics, economic policy and/or research institutions and other practitioners of economic disciplines.

It is important to preserve this openly available content that covers a variety of topics in economics ranging from general macro or microeconomics to specific sub-topics in finances, taxes or healthcare economics.

The majority of the blogs are well established, long running blogs with verifiable credentials of the authors. The collection is not limited to the United States in scope. Notable blogs from Canada, United Kingdom, Belgium, Australia, France and other countries are included.

I am delighted and humbled to mention that the LOC has decided to include Mostly Economics blog in the list of its archives. 

Once again, I wish to thank all the visitors and well-wishers of this blog.

What year in the history of an advanced economy is like India today?

September 9, 2021

Ananya Goyal, Renuka Sane and Ajay Shah in this blogpost compares India’s development metrics of today to when the other countries achieved similar levels:

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Bangladesh at 50: Reflections on Financial Inclusion

September 9, 2021

CGAP is running a series of articles on 50 years of financial inclusion in Bangladesh:

There’s No Say’s Law in Classroom Teaching

September 3, 2021

What a blogpost from Ashish who writes the Econforeverybody blog.

Yes, that’s not exactly what he said, but I’m going with the definition we all “know”. And I’m going to repurpose that popular definition for going on a rant about classroom teaching.

Supply does not create its own demand.

That is, the supply of education in the classroom does not create the demand for education in the classroom. 

Do you have a memory of staring out the classroom window, having given up on waiting for time to move faster? My congratulations to you if you have never once experienced this emotion across school and college, because it was my only emotion in almost all classes I ever attended. And boredom of an excruciating nature was my only emotion because all classes were tremendously boring.

Some were instructive. Some teachers/professors really knew their stuff. Two professors, who I am lucky enough to still have as mentors, were the best professors I have ever had. But even they didn’t think it was their responsibility to inspire the class to learn more. A Walter Lewin type moment in a class that I attended? It has happened not more than one or two times across over two decades of sitting in classrooms.

And this is, even today, something that enrages me.

Speaks for most students really.

How to teach? Concepts or curiosity? We usually say teach concepts and curiosity will follow. Ashish turns it around and says pique their curiosity and concepts will follow:

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Top 100 Economics Blogs & Websites To Follow in 2021

July 7, 2021

Feedspot has updated its list of top 100 economics blogs and websites for 2021.

Humbled to see Mostly Economics blog is on the list for 2021 as well. Thanks a lot to all the readers and well-wishers.

When should policymakers reach for the history books? Some examples from the 20th century

June 16, 2021

Catherine Schenk in BankUnderground blog:

Since the Great Financial Crisis started in 2007 there has been renewed interest in using the past as a basis for policy responses in the present, but how useful is history and how is it best used? Certainly, the old chestnut that ‘those who neglect the past are sure to repeat it’ is a valid warning, but how to select the appropriate historical examples and draw the right lessons is a more nuanced exercise that is explored in this post.

    • Galbraith (1990): ‘the extreme brevity of the financial memory’ makes financial markets susceptible to unstable euphoria.
    • Greenspan (1997): ‘regrettably, history is strewn with visions of such ‘new eras’ that, in the end, have proven to be a mirage. In short, history counsels caution’.
    • Macmillan (2008): ‘the past can be used for almost anything you want to do in the present’.
    • Bernanke et al (2019): ‘Financial crises recur in part because memories fade’.

Perhaps we need to think beyond just crises when we consider how history can be helpful to central bankers. The essence of economic history is to highlight the importance of institutions and the political and social context of economic outcomes. Knowing about how policies were developed in the past can enhance our understanding of the changing context of policy implementation. To do this, uncovering in the archives the options that were rejected might be as important as assessing the impact of policies that were adopted. More broadly, historical case studies can be used as a training ground for central bank staff and broaden their conceptual or theoretical imagination by challenging current ideas of what central banks are for and what their priorities should be. This may become increasingly important as the central banking orthodoxy from the past 30 years begins to break down.

Central banks will need flexible minds to face future challenges. Finally, of course, economic historians create long-term data sets to provide the raw material to test and inform shifts in economic policy. The Bank’s Millenium of Macroeconomic Data is a good example of this. In 2009 at age 94, Paul Samuelson’s advice to economists was ‘Have a very healthy respect for the study of economic history, because that’s the raw material out of which any of your conjectures or testings will come’.

Catherine lists several books which point to lessons for today. In the end:

In sum, history provides a playground for policymakers to apply data or scenarios to their policymaking and to provide inspiration for thinking outside the box. But the pursuit of lessons from economic history must be carefully calibrated to the underpinning institutional setting – this nuance calls for greater collaboration between economic historians and central bankers.


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