Archive for the ‘Blogs to Read’ Category

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:


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:


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.

Quantifying culture and its implications for bank riskiness

May 26, 2021

Joel Suss, David Bholat, Alex Gillespie and Tom Reader explain their recent paper on the Bank Underground blog. The paper finds a statistically significant relationship between organisational culture and bank risk. The effect is substantive – a one standard deviation improvement in culture is expected to reduce risk by 25%.

In sum, a bank’s culture is a leading indicator of its risk. While this claim has often been made, it has been far less frequently substantiated. Our research provides evidence to support it.

This finding has a few implications for banking supervision. First, it suggests that supervisors should seek to measure organisational culture explicitly and use cultural indicators as inputs into microprudential models of bank risk. While culture is already monitored by supervisors qualitatively and directly, via surveys and interviews of bank staff, we suggest it might be done quantitatively and unobtrusively, in ways both more objective and less costly to obtain. Our own composite indicator is an initial attempt that could be further developed, with additional data added. It is also likely that the way we measure organisational culture needs to change over time. As per Goodhart’s Law, if firms are aware that regulators are looking at a handful of indicators to measure their culture, they may seek to manipulate them, or optimise them while allocating resources away from other, equally important practices that make for a good organisational culture.  

Second, our research underscores the importance of analysing firms holistically. Many of our indicators, such as the frequency of internal fraud or customer complaints, are traditionally thought to relate to conduct and consumer protection. However, our research shows they are directly relevant for prudential supervision.

Summer Macro reading list..

May 26, 2021

Ashish Kulkarni has a list of books to read on his super blog.


The Bank of England’s architects and architecture

May 19, 2021

Alice Beagley, Museum Officer at Bank of England Museum in this post reviews how architects and architecture have shaped Bank of England building.


The policymaker’s fiscal trilemma: increase spending, lower taxes and reduce debt

May 13, 2021


Abebe Aemro Selassie and Andrew Tiffin of IMF in this new post:

Imagine you’re a policymaker in sub-Saharan Africa. You’ve been charged with lifting your country out of the worst health crisis in living memory, and nobody around you knows when it will end—the second wave that gripped the region earlier in the year has eased, but many countries are nonetheless bracing for further waves as winter approaches.

One piece of good news is that a global recovery is well underway. Key economies are rebounding sharply, global trade has improved, commodity prices are higher, and investment flows have resumed.

The bad news is that, for sub-Saharan Africa, at least, near-term growth prospects are somewhat more subdued. And as long as widespread vaccination remains out of reach, you will face the unenviable task of trying to boost your economy while simultaneously dealing with repeated COVID-19 outbreaks as they arise.

This is the situation facing many finance ministers in sub-Saharan Africa today. And they face three immediate challenges: Firstly, to meet increased spending needs; secondly, to contain a pronounced increase in public debt, and finally, to mobilize more tax revenues.

How policymakers navigate this trilemma will have a huge bearing on economic and social outcomes in the coming years.

An incredibly difficult balancing act is needed as efforts to address one element will inevitably come at the expense of the other two. Higher spending, for example, will require that the authorities either take on more debt or increase taxes. Or both. On the other hand, efforts to boost tax revenues—although politically and socially challenging—would provide much-needed resources to either increase spending or contain debt. Or both.

Obviously MMTers will disagree to this trilemma.

Economist as a Tailor: Creativity in the art of sewing, crafting and recycling

April 26, 2021

Jeemol Unni, Professor of Economics at Ahmedabad University dons the hat of a tailor with aplomb.

Sewing is a hobby I cultivated when I was a child, later as an adolescent and continued as an adult till the present! If sewing is being creative and creativity is in the genes, then I am sure it came to me from the maternal side of my family. My grandmother and my mother enjoyed sewing and taught me various tricks of the trade even as a child. Both of them had sewing machines. My grandmothers’ was what one sees in tailor shops in India, set on a table, with a pedal at floor level. The manual sewing machine was operated by running the pedal with the feet. Grandma would encourage me to run it and stitch in straight lines on old cloth even when I was a child. She taught me the etiquette of sewing, even how to hold a needle. You point the needle towards yourself when stitching by hand! She, my mother and the teacher in school taught me various kinds of embroidery stitches. However, my interest was more in sewing with a machine.

My mother had a manual sewing machine run by hand which she converted into a motor run machine. She made all my frocks and skirts and more for my cousins as well. She taught me to cut and sew dresses, how to cut the neck, the sleeves, and how to stitch it. Some of the gems she taught me was how to cut the cloth used to hem or stich the neckline. Strips of cloth are cut diagonally to allow for greater stretch while stitching the neckline. I have had a hand-run sewing machine for ages, with a handle that you spin to run the machine. Never converted it to a motor run one as I use it not-so-frequently given my full time profession as an Economist. 


What led colonial states to invest much more in some districts than others?

April 19, 2021

Prof Joan Ricart-Huguet of Loyola University Maryland in this article tries to answer the colonial question:

What led colonial states to invest much more in some districts than others? This study shows that natural harbors and capes led some places to become centers of pre-colonial trade. These areas, in turn, attracted the lion’s share of colonial public investments not only in infrastructure but also in health and education. Public investments were considerably lower in places further away from the centers of pre-colonial trade.


Bank of England Museum Blog

March 23, 2021

Bank of England’s museum started a blog on 19-Feb-2021:

Our new blog explores our history and interesting objects from our collections. These informal posts takes you behind the scenes of our museum.

First post argued why BoE was formed:


Limiting Central Banking

March 2, 2021

From Moneyandbanking blog

Since 2007, and especially over the past year, actions of public officials have blurred the lines between monetary and fiscal policy almost beyond recognition. Central banks have expanded both the scope and scale of their interventions in unprecedented fashion. This fiscalization risks central bank independence, thereby weakening policymakers’ ability to deliver on their mandates for price and financial stability. In our view, to find a way to back to the pre-2008 division of responsibilities, officials must establish clearer limits on what central banks can and cannot do.


So, what should central banks do and not do?

First, it is fiscal authorities that ought to make the unavoidably political choices that directly influence resource allocation. Governments already have a myriad of institutions that do so. For example, the United States has government loan guarantee programs for housing, farm, small business, and student loans. Unelected central bankers should not control the scale and mix of programs like these. And governments should not conceal such fiscal actions on the balance sheet of the central bank. In a democracy, doing so lacks legitimacy and would become unsustainable.

As Paul Tucker notes in his excellent book, Unelected Power, legitimacy requires that appointed technocrats not engage in activities that primarily address the distribution of resources within a society (see here). Tucker also highlights the need to concentrate central bank authority where (as a result of the problem of time consistency) only they can achieve policy success at relatively low cost. This means restoring (as soon as possible) the focus on the traditional goals of price and financial stability.

At this stage, to ensure that central banks can do what they are designed to do well, we need to impose clear boundaries on the scope of what they are authorized to do, limiting both what they can buy outright and to whom they can lend. Doing this requires a fine balance, as we need to make sure that policymakers can still aid in a crisis. But, it should not be easy for policymakers to evade the restrictions. Most of all, we need a system in which central bankers are not left feeling that they are the only game in town, so that when monetary policy hits the limits of its effectiveness, they are not obliged to act in quasi-fiscal ways that threaten their legitimacy.

In this (and in other ways), to be successful, their discretion must be constrained.

Negotiating Bank of England’s nationalisation

March 1, 2021

1 March 2021 marks 75 years of natioanlisation of BoE.

Austen Saunders writes a post in Bankunderground blog:

1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. During these negotiations Catto lobbied for the Bank not to be given more powers to regulate banks. Why? The answer hinges on how the Bank understood its role. And it helps explain why, as David Kynaston sees it, the Bank and the government ‘missed a historic opportunity’ to comprehensively redefine the Bank’s responsibilities.

This was different from RBI’s nationalisation in Jan-1949 followed by Bank Regulation Act in Mar-1949.

How to Regulate a Railroad: Evolution of views

February 12, 2021

Insightful post by Prof Timothy Taylor on his Conversable Economist blog:

The economics of railroads poses some problems for economists. What combination of competition and regulation will keep prices low but also encourage ongoing investment in track and rolling stock? Russell Pittman provides an overview of these issues and the various regulatory responses that have been tried to address the dangers of monopolistic pricing on one side and of competition leading to repeated bankruptcies on the other side in “On the Economics of Restructuring World Railways, with a Focus on Russia” (January 2021, US Department of Justice, Economic Analysis Group Working Paper 21-1). A version of this paper is also published in Man and the Economy (December 2020, 7:2, subscription required). The paper was originally delivered as a lecture at the Higher School of Economics in Moscow, which is the reason for some emphasis on Russia’s experience, but the discussion ranges broadly across the topic and international experience. 

Pittman’s quick overview of the problems of competition in railroads–which are in a broad sense similar to the problems of competition in other network industries including electricity, phone service, and airlines–may be useful in setting the stage. The standard views of economists and policy-makers have shifted over time.

Top 15 Indian Economy Blogs And Websites To Follow in 2021

January 18, 2021

Do follow the list 🙂


Historical Echoes: Santa Claus as Legal Tender

December 24, 2020

NY Fed’s Liberty Street Economics Blog posted this in 2014:

From 1793 until 1861, when the U. S. Treasury Department was given exclusive rights to produce legal tender, thousands of different styles of bank notes were created by U.S. banks. The banks all based their currencies on standardized units, but in most every other way the notes differed wildly—colorful versus monochromatic, and graphics ranging from stock images to almost any concept one could imagine.

During the unregulated 19th century, a variety of banks issued their own holiday-themed currency. One popular figure featured on many bills was Santa Claus. Christmas was declared an official holiday in many northern states in the mid-1800s, and some banks celebrated by creating Santa Claus currency. This was a very popular time for Santa in the United States, spurred on by the publication of “A Visit from St. Nicholas” by Clement Clarke Moore in 1823.

The Santa Claus bank notes became very popular as keepsakes, because denominations were typically small and the subject was at the forefront of peoples’ minds given the brand-new official holiday. One motivation for the banks to release these and other collectible currencies was to dissuade people from redeeming the bills for their underlying gold value. Among the banks to issue Santa Claus money was the Howard Banking Company of Boston, Massachusetts, which issued such a bank note in the 1850s. This $5 bill featured Santa Claus wearing a tricorne hat and riding his sled along a roof, led by a herd of reindeer.

Sadly, banks stopped releasing Santa Claus currency once the U.S. Treasury took over the production of legal tender. After that point, these currencies became known as obsolete bank notes and lost all value outside of their worth as collectibles. Fortunately, the spirit of Santa Claus lives on even if his visage on currency has disappeared. Happy Holidays!

Happy X-mas wishes to all..

The Coase Theorem at 60: A Process of Becoming

December 16, 2020

Prof Timothy Taylor in this post writes on the Coase Theorem at 60.

Steven Medema know more about the history of the Coase theorem than many of us know about our spouses. So whether you are distantly or intimately familiar with the idea, you are likely to pick up some insights in his article, “The Coase Theorem at Sixty” (Journal of Economic Literature, 2020, 58:4, pp. 1045-1128, subscription required).

In the 1960 article by Ronald Coase, “The Problem of Social Cost,” the Coase “theorem” was not actually a theorem, nor does it seem to be the main point of the entirely verbal essay.  Coase was working on various questions of regulatory economics, which might be summarized as the question of the appropriate government reaction in situations where market don’t perform well. For example, it had been recognized since the 1920s and the work of A.C. Pigou that some economics activities might involve “externalities,” where social costs were imposed on others who were not part of the market transaction. Pollution is an obvious example. The common policy prescription was that the government should estimate the value of this additional social cost, and then impose a “Pigovian tax” so that the firm producing the externality would face the actual social cost of its action–in effect, it would no longer be able to dump its pollution garbage into the environment for free. 


Medema describes in detail the unfolding of the Coase result over time, as the issues of potential problems, involved parties, information, and incentives have been explored in many contexts–including contexts outside of economics. Here, I’ll close with Medema’s overall summary of this process. 

The Coase theorem is, by any number of measures, one of the most curious results in the history of economic ideas. Its development has been shrouded in misremembrances, political controversies, and all manner of personal and communal confusions and serves as an exemplar of the messy process by which new ideas become scientific knowledge. There is no unique statement of the Coase theorem; there are literally dozens of different statements of it, many of which are inconsistent with others and appear to mark significant departures from what Coase had argued in 1960. …

The theorem has never been given a generally accepted formal proof; yet it has been the subject of scores of attempts  to “disprove” it in a stream of analysis and debate that continues to this day. It has been labeled a “tautology” and the “Say’s law of welfare economics” (Calabresi 1968, pp. 68, 73), an “illuminating falsehood” (Cooter 1982, p. 28), and even a “religious precept” (Posin 1993, p. 810). Halpin (2007, p. 339) calls the theorem “theoretically degenerate … and ideologically charged.” Usher (1998, p. 3) bundles these various charges together, claiming that the theorem is ”tautological, incoherent, or wrong,” with the specific verdict resting upon to which version of the theorem one subscribes.  … 

The nature of the theorem’s underlying assumptions is often said to make its domain of direct applicability nil; yet, it has been invoked, criticized, and applied to legal-economic policy issues in thousands of journal articles and books in economics and law … as well as in journals spanning fields from philosophy (Hale 2008) to literature (Minda 2001) to biology (Frech 1973a). Indeed, the Coase theorem may be the only economic concept the use of which is more extensive outside of economics than within it.

Don’t take it for granted: the value of high-quality data and statistics for the ECB’s policymaking

October 23, 2020

On 20 October 2020, UN Statistical Division started to celebrate World Statistics Day every 5 years.

Thus, 20 Oct 2020 becomes the third such day.

Isabel Schnabel of the ECB writes a blogpost on the occasion. She says we take good quality stats as granted. However, it requires tremendous effort and governance to produce good quality data. ECB is central to this data process in Euroarea countries:


Are digital currencies token based or accounts base currencies?

August 20, 2020

In Account based currencies, one tries to verify the identity of the payer. In token based one is trying to identify the currency with which the transaction is based. All the banknotes and coins are token based whereas UP transactions are accounts based.

Bitcoin fits the definition of an account-based system. The account is a Bitcoin address, and the private key is the proof of identity needed to transact from that account. Every time a Bitcoin user wants to spend Bitcoin, that user must verify their identity by using their private key. It is not relevant whether the system requires users to reveal their true identity. Rather, what matters is whether a user must follow a process the system has developed for verifying the identity that they established within the system, whatever that may be. Analogously, a bank that wants to move funds through the Fedwire Funds Service has to comply with the Reserve Banks’ security procedures, which includes a set of access control features.

Bitcoin also fits the definition of a token-based system. When someone wants to spend a Bitcoin, the protocol verifies its validity by tracing its history. The current transaction history is used to verify the validity of the “object” being transferred, as other token-based systems also do. With Bitcoin, the object is a UTXO, which is only valid if it has not already been spent. With cash, the object is a note, which is only valid if it is a genuinely issued from the central bank.

One important difference between Bitcoin and a physical payment object, such as a dollar bill or a gold coin, is whether the payee can ascertain the unit’s validity with reasonably high confidence. For example, dollar bills have security features, which are easy to identify and difficult to counterfeit. In the case of a digital currency, it is not possible for the payee to ascertain the authenticity of the digital payment instrument independently..

JP Koning in his super blog thinks bitcoin is just account based:

A token is an object. And objects can be counterfeited. That’s why when Alice pays Bob a $20 note, Bob is responsible for carefully checking it.

Account-based systems don’t suffer from counterfeiting problems. It’s impossible for a Alice to pay Bob with fake dollars from her Wells Fargo account. Wells Fargo dollars aren’t independent objects in the same way that banknotes are. They are entries in a well-secured database. The same goes for bitcoins. There is no way for Alice to make a fake bitcoin entry and send it to Bob.

In addition to counterfeitability, I’d argue that another key feature of a token is that it can be lost by one person, found by another, and then reused for payment. If Bob loses either his $20 banknote or his gold Krugerrand, Alice can find them and spend them.

But account-based systems don’t have this feature. Wells Fargo dollars are database entries. It’d be impossible for Alice to lose a Wells Fargo database entry or Bob to find one and reuse it. And the same goes for bitcoins. Alice can’t lose 0.2234 bitcoins, nor can Bob find Alice’s 0.2234 bitcoins.

Interesting discussion..

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