Archive for the ‘Blogs to Read’ Category

Will Reserve Bank of New Zealand have dual objective like Fed? Inflation and employment?

April 18, 2017

How tides keep turning. Reserve Bank of NZ was the first bank to start inflation targeting formally in 1989. Since then, inflation targeting has become a huge buzzword across central banking circles with more and more central banks taking up targeting inflation.

Now the pioneer of inflation targeting could be made to reconsider and change its single mandate. If the Labour government comes to power in NZ, there are high chances that the RBNZ Act will be changed and employment will be added to the single objective.

The superb blog on NZ economy – Croaking Cassandra blog reports:

I’ve already written a bit about Labour proposals on monetary policy (here and here) and, for now at least, I don’t want to write anything more about the proposed changes to the decision-making process or the plan to require the Monetary Policy Committee to publish its minutes.  If there are all sorts of issues around the details of how, I haven’t seen anyone objecting to the notion of moving from a single decisionmaker model to a a legislated committee, or objecting to proposals to enhance the transparency of the Bank’s monetary policy.    The Bank was once a leader in some aspects of monetary policy transparency, but is now much more of a laggard.

Where there has been more sceptical comment is around Labour’s proposal to add full employment to the statutory monetary policy objective.    At present, section 8 of the Reserve Bank Act reads as follows:

The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices.

Responding to this aspect of Labour’s announcement hasn’t been made easier by the lack of any specificity: we don’t know (and they may not either) how Labour plans to phrase this statutory amendment.    There are some possible formulations that could really be quite damaging.  But there are others that would probably make little real difference to monetary policy decisionmaking quarter-to-quarter.  Probably each of us would prefer to know in advance what, specifically, Labour plans.  But this is politics, and I’m guessing that there is a range of interests Labour feels the need to manage.  In that climate, specificity might not serve their pre-election ends.  One could get rather precious on this point, but it is worth remembering that there are plenty of other things that may matter at least as much that we currently know little about.  Under current legislation, who becomes the Governor of the Reserve Bank matters quite a lot to shorter-term economic outcomes, and we have no idea who that will be.   The details of the PTA can matter too, and under the governments of both stripes the process leading up to the signing of new PTAs has been highly secretive (often even after the event).  For the moment, we probably just have to be content with the “direction of travel” Labour has outlined.

In some quarters, Labour’s plans for adding a full employment objective have been described as “cosmetic”, as if to describe them thus is to dismiss them.    That is probably a mistake.  When I went hunting, I found that cosmetics have been around for perhaps 5000 years (rather longer than central banks).   People keep spending scarce resources on them for, apparently, good reasons.     Why?  They can, as it were, accentuate the positive or eliminate the negative –  highlighting features the wearer wants to draw attention to, or covering up the unsightly or unwanted marks of ageing.    They (apparently) accomplish things for the wearer.

🙂

Further, in all NZ elections central bank objective has been a focal point:

What is the relevance of all this to monetary policy?  Well, there has been a long-running discontent with monetary policy in New Zealand, especially (but not exclusively) on the left.  In the 28 years since the Act was passed there has not yet been an election in which some reasonably significant party was not campaigning to change either the Act or the PTA.  We haven’t seen anything like it in other advanced countries.   Personally, I think much of the discontent has been wrongheaded or misplaced –  the real medium-term economic performance problems of New Zealand have little or nothing to do with the Reserve Bank –  and many of the solutions haven’t been much better (in the 1990s, eg, Labour was campaigning to change the target to a range of -1 to 3 per cent and NZ First wanted to target the inflation rates of our trading partners, whatever they were).     But that doesn’t change the fact that there has been discontent –  and more than is really desirable.

But what about the trade-off?

I’m quite clear that there is no long-run trade-off adverse trade-off between achieving and maintaining a moderate inflation rate (the sorts of inflation rates we’ve targeted since 1990) and unemployment.  And since something akin to general price stability generally helps the economy function better (clearer signals, fewer tax distortions etc) there is at least the possibility that maintaining stable price might help keep unemployment a little lower than otherwise.  Milton Friedman argued for that possibility.

But I don’t think that is really the issue here.

Because it is not as if there are no other possible connections between monetary policy and unemployment.   Pretty much every analyst and policymaker recognises that there can be short-term trade-offs between inflation and unemployment (or excesss capacity more generally –  but here I’m focusing on unemployment).   Those trade-offs aren’t always stable, even in the short-term, or predictable, but they are there.    Thus, getting inflation down in the 1980s and early 1990s involved a sharp, but temporary, increase in the unemployment rate.  That was all but inescapable.  And when the unemployment rate was extremely low in the years just prior to 2008, that went hand in hand with core inflation rising quite a bit.  Monetary policy decisions will typically have unemployment consequences.    Unelected technocrats are messing, pretty seriously, with the lives of ordinary people.   It is all in a good cause (and I mean that totally seriously with not a hint of irony intended) but the costs, and disruptions, are real –  and typically don’t fall on the policymaker (or his/her advisers).

And it isn’t as if monetary policymakers are typically oblivious to the pain.   There was plenty of gallows humour around the Reserve Bank in the disinflation years, a reflection of that unease.  And yet often the official rhetoric is all about inflation –  as if, in some sense, what look like relatively small fluctuations around a relatively low rate of inflation, matter more than lives disrupted by the scourge of unemployment.

So perhaps that is why cosmetics can matter, and serve useful ends even in areas like monetary policy.

Hmm..age old debates once again come to the surface when we were told they have been addressed. Inflation targeting was seen as the only thing that worked given NZ’s experiences. Now with pioneer considering changes, will it lead to change in thinking in other countries too?

There is little doubt that central banks though may just be targeting inflation but their actions have wide ramifications on the entire economy. This is particularly tricky in case of growth/employment issues which have to be answered by politicians. Thus, central banking is far more politicised than we imagine.

Interesting times. Who knows we could be going back to old central bank debates if we see so called cosmetic changes in RBNZ…

How did the DSGE name begin and become so important in world of macro/monetary economics ?

April 4, 2017

Beatrice Cherrier has a post on the topic.

According to JSTOR, it was Robert King and Charles Plosser who, in  their famous 1984 paper titled Real Business Cycles, used the term DSGE for the first time, though with a coma (their 1982 NBER draft did not contain the term): “Analysis of dynamic, stochastic general equilibrium models is a difficult task. One strategy for characterizing equilibrium prices and quantities is to study the planning problem for a representative agent,” they explained upon deriving equilibrium prices and quantities.

There is lot more in the post.

The profession is really poor with naming such terms/models. Most of the time these names just scare/intimidate you. One does not know whether that is the intended purpose as well.

When Marginal Revolution Blog visits Lasalgaon Onion Market

March 30, 2017

One very important module in all economics training should be visiting and understanding local markets. It is appalling how as economics students we don’t know how markets/shops work in our neighbourhood and markets in our city of training. It is as if markets only exist in textbooks. They are just all around us but we hardly care. It might be just a great idea if we students understood these markets and look to make them better.

So it was interesting to read this post on MR blog by Alex Tabarrok who visited Lasalgaon’s onion market. It was also nice to read that he was invited by an avid blog reader!

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In today’s finance, there is return free risk, but no risk free return…

March 27, 2017

Prof JR Varma just nails it in this post. He quotes from John Cochrane’s blog whose notion of risk is way too simplistic even despite recent crises.

He says economists continue to believe in risk free return whereas more accurately it is return free risk:

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Post Charolette Hogg Resignation: Thinking about senior central bank appointments

March 17, 2017

I had blogged about the recent case of Ms. Charolette Hogg who had to resign from Deputy Governorship of Bank of England. It is not any simple resignation with many lessons on central bank governorship. It should be discussed much widely.

CroakingCassandra  Blog, the goto blog on NZ economy and central banking issues thankfully has a post on the issue. He draws lessons for Reserve Bank of New Zealand and quite a bit applies to Reserve Bank of India as well (barring lack of female participation at top central bank roles. Unlike RBNZ, RBI has had females at the helm, though much more needs to be done.)

 

Are we all macroprudentialists?

March 7, 2017

Julien Noizet of Spontaneous Finance is back to blogging after a break. He questions the government/central bank intervention in financial matters.

In his recent post, he asks the question: Are we all macroprudentialists?

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Historically some of the truly radical innovations in finance have come from criminal enterprises…

February 27, 2017

Prof JR Varma has a blog post which debates Uberisation of finance. They key idea here is whether innovations in finance can/should be ahead of regulation. Moreover, should regulation kill or allow innovation?

He quotes from a paper by Pollman and Barry in regulatory arbitrage. The business is done under the assumption that law shall be changed in their favor overtime. In finance we are seeing a surge in technology which also relies on regulatory arbitrage. So, how do we think this will pan out?

Prof Varma points firstly current finance players are fairly tech savvy and know the game. Second and more interestingly is this thing that historically most finance innovations come from criminal enterprise itself!

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Would implementation of FSLRC have strengthened the RBI Board?

January 26, 2017

Stuff continues to be written on RBI Board. After its (mysterious) role in demonetisation, we have seen flurry of articles from comparing it to SEBI to international central bank boards. Then this blog looked at historical evolution of RBI Board and another one on fullness or emptiness of the Board in recent years.

This blog had also written about why there is no discussion of FSLRC’s recommendations on RBI Board. Apparently, one article picked the post and asked broader questions.

Now, in another long must read post Bhargavi Zaveri adds more clarity to the debate. She says on the contrary FLSRC would have strengthened the RBI Board. Would it have altered the outcome of demonetisation?

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Focus Economics – Top Economics & Finance Blogs of 2017

January 26, 2017

Focus Economics, a global economics analysis firm publishes its list of top economics and finance blogs for 2017.

It is wonderful to see Mostly Economics featuring in the list. Thanks once again to all the visitors for carrying the word forward.

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Are there any banks on New York’s Bank Street?

January 23, 2017

Amy Farber of NY Fed’s Liberty Street blog has an interesting post.

She points how NY’s Bank Street does not have any banks. Infact, it is not even the street where banks were originally localted. It is a street where banks relocated due to yellow fever in NY:

Bank Street in New York City is a quaint little six-block stretch in Greenwich Village (see this 48-second video) with a huge cultural legacy—but no banks. Many cities and towns have a Bank Street and often the street is so named because that’s where most of the banks were originally located. (It is not likely that any Bank Street got its name because of its proximity to a riverbank.) However, New York City’s Bank Street is not where the banks were originally located and it’s not even in the financial district—it’s in Greenwich Village. Why, then, is it called “Bank Street?”

Okay, we cheated in that last paragraph. Manhattan’s banks were not on Bank Street originally but they were indeed there at some point—they moved northward from Wall Street in the late eighteenth and early nineteenth centuries in an effort to escape yellow fever. A post on the Forgotten New York website explains how there were two main waves of the epidemic in the city and that Bank Street was essentially named for the first bank to relocate, not the set of banks that eventually moved there:

Though most neighboring streets are named for local personalities in the Village’s early days (one early burgess, Charles Christopher Amos, had three streets named for him), Bank Street is named for one of the oldest institutions in NYC, the Bank of New York, which opened an office “uptown” after a yellow fever epidemic downtown on Wall Street in 1798 prompted a relocation. Several other banks followed suit in 1822 after a second outbreak.

One can view this relocation of banks as an early form of corporate contingency (or business continuity) planning. Think about how important continuity is in banking and how advantageous it would have been to keep those early New York banks functioning. In his 1922 book A Century of Banking in New York, 1822-1922, author Henry Lanier describes, in the chapter “The Year the Banks Migrated,” the Bank of New York’s forethought:

Some bankers and others had been more foresighted. As noted, one of the first deaths in the scourge of 1798 was a book-keeper in the Bank of New York. “Fearing another visitation of the pestilence, the bank made arrangements with the branch Bank of the United States to purchase two plots of eight city lots each, in Greenwich Village, far away from the city proper, to which they could remove in case of being placed in danger of quarantine. Here two houses were erected in the spring of 1799, and here the banks were removed in September of that year, giving their name, Bank Street, to the little village lane that had been nameless before. The last removal was made in 1822, when the yellow fever raged with unusual virulence, and the plot which had been purchased for $500 was sold in 1843 for $30,000.”

In this 1842 map of lower Manhattan, you can see Bank Street just to the right of the large “E” of the “Hudson River” label. (Here is a 1933 street view.) Of course, Wall Street is in the bottom tip of the island. Bank Street is about 2.7 miles north of Wall Street. Yes, it takes a bit of time to walk from one to the other—but not that long. 

There is further discussion on how such a small distance relocation helped banks.

Interesting..

Financiers of Victorian England would marvel at our nativity about markets and economics

January 19, 2017

An old post written in Oct 2016 but really fascinating.

Andrew Odlyzko, Professor of Mathematics (?!) and an interdisciplinary researcher writes about Victorian Finance:

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Thinking about appropriate size of currency notes…

January 18, 2017

Wow. There is so much to learn and figure about monetary economics other than just inflation rates.

The Moneyness blog which has been a great source of education post 8 Nov 2016 has another post to think about. This one is on size of currency note. The blog says that India reducing size of the new Rs 500 and Rs 2000 note is in line with what practices elsewhere. He also points to this wonderful note which discusses various aspects of note design:

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Should we replace money with guns/bullets?

January 17, 2017

Elaine’s Idle Mind blog has an interesting piece on history of currency in New England/Massachusetts.

The post says as money is nothing but an instrument of persuasion, what better than having guns to persuade :-). It further points how we actually had musket balls  a currency!: (more…)

Would postal stamping the old notes have helped in cash crunch?

January 9, 2017

JP Koning’s blog is the goto blog for monetray history especially post demonetisation.

In his recent post, he highlights how the postal stamping of old notes could have helped the government tide the cash crunch.

He starts with how the government missed a monetary historian in the team:

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Is US becoming a banana republic?

December 19, 2016

Scott Sumner has an interesting piece titled as Banana Republic watch:

How do you know when your country is becoming a banana republic?  Let’s call our imaginary banana republic “Costaguava”.

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Mostly Economics ranked in top 100 economics blogs..

December 19, 2016

Feedspot, a blog aggregator has ranked Mostly Economics amidst the top 100 economics blogs. It is currently at 44!

The Best Economics blogs from thousands of top Economics blogs in our index using search and social metrics. Data will be refreshed once a week.

These blogs are ranked based on following criteria

  • Google reputation and Google search ranking
  • Influence and popularity on Facebook, twitter and other social media sites
  • Quality and consistency of posts.
  • Feedspot’s editorial team and expert review

Hope it is a rigorous enough methodology! Along with Intelligent Economist badge, there is a badge from Feedspot on the blog page now.

It is amazing and humbling to feature in these rankings amidst the stalwarts of economics and economics blogging world. Thanks to all the visitors and supporters for making it happen.

One does not like these shameless self marketing posts but I guess it is fine sometimes…:-)

Issuing seperate currency in leper colonies…

December 12, 2016

Elaine’ s idle mind blog has a post which discusses another aspect of colonisation – leper colonies.

There was a belief that leprosy could spread via currency as well. This the masters issued a seperate leper currency in these colonies:

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Happy Diwali to Mostly Economics visitors

October 29, 2016

Wishing all Mostly Economics visitors a very happy and a prosperous Diwali. As this blog keeps saying and says it again. This blog is making Diwali (and other wishes) wishes for so many years mainly due to the several visitors. The lamp of the blog continues to be alive and all credit is to all of you.  May it continue for many years.

This Diwali one one is really confused about the appeal to ban/don’t use Chinese goods from several quarters. Economics obviously says such demands should be rejected but political economics considerations have some points to be considered. What do visitors think?

Anyways, have fun and be safe.

Renting a tractor the ola/uber way…

October 20, 2016

How lessons are transplanted from one industry to the other.

This bit is really interesting (HT: CB Blog). Mahindras have launched an app called trringo. The small farmers can just swipe and call a tractor. Just like we do for taxis using ola/uber:

Hailing a ride with your smartphone? That’s old news — ask any Uber, Lyft or Careem customer.

But how about hailing a tractor?

Just as urbanites may find it impractical to own a car but still need a ride once in a while, so, too, in the Indian countryside: To get the most from their land, small-scale farmers may need tractors and other machines from time to time, but they may not be able to afford their own.

Renting can be the answer, but the way it was done in India before was not very appealing to farmers. The process was usually informal and local, run by equipment owners who could be capricious or discriminatory, and prices tended to surge at the times of year every farmer in the area would be doing the same job and need the same equipment.

Mahindra & Mahindra, a major Indian vehicle manufacturer, thought there had to be a better way.

“One of the things that struck us was the toll it took on the self-esteem of the farmer,” said Rajesh Jejurikar, chief executive of the company’s farm-equipment division. “It was, literally, like having to beg for it. He didn’t feel like it was his right.”

So the company came up with a smartphone app, Trringo, which it rolled out in September in the state of Karnataka and will soon be available in other agrarian states like Gujarat, Madhya Pradesh, Maharashtra and Rajasthan.

Right now, a farmer can use the app to specify what is needed and when, and the company will send the requested tractor and a driver from one of about 20 hubs across Karnataka. The machine might belong to Trringo or to a private owner using the service to book rentals.

There is one snag: By recent estimates, only about 9 percent of rural India has mobile internet access. So the company has also set up call centers for farmers to arrange rentals by telephone.

Will be interesting to see how this experiment fares…

Future of Library in next 100 years: A novel initiative to keep books in demand

October 17, 2016

Katie Bennett of Oxford University Press has a post on a very interesting initiative taking place in Oslo, Norway.

The idea is to make some efforts to ensure both libraries and books remain relevant even 100 years later:

I want to live to be 100 years old. Yes, that is a bold statement, and I’ll admit this goal may be a bit unrealistic and potentially impossible, but my curiosity pushes me to beat the laws of nature. As a 22-year-old avid reader working for a publishing company, I can’t help but wonder: what will be the future of the printed book? Since the creation of the world wide web by Tim Burners-Lee in 1989 and it’s continual expansion since then, this question has haunted the publishing industry, raising profound questions about the state of the industry and the printed book. After the debut of the Amazon Kindle and the Barnes & Noble Nook, it seemed as if the days of print materials were numbered. Katie Paterson, founder of the Future Library of Norwa project, doesn’t seem to think so, and she’s got a plan to ensure their existence.

A renowned Scottish artist, Paterson is known for her grand-scale artistic ideas and endeavors. On 12 June 12 2014, Paterson began a century-long project as her way of preserving the future of the library and the printed book. Over 1,000 trees have been planted in the Nordmarka forest just outside of Oslo, Norway for the Future Library, called Framtidsbiblioteket in Swedish. These trees, only now just saplings, will grow to full maturity by 2114, ready to be harvested to print the most mysterious literary anthology ever compiled.

Each year, one prominent author submits an original manuscript of his or her writing—be it a poem, short story, novel, play, anything—and seals it in a box. For the next 100 years, that box will be kept in trust, unpublished, until 2114 when the future project leaders will publish the set of works submitted into printed anthologies available to the public. The New Deichmanske Public Library in Bjørvika, Oslo, opens in 2019 and will house the manuscripts in a specially designed room, lined with wood from the forest. Only the authors’ names and titles of their works will be displayed.

For the next 98 years, no one—not even Katie Paterson herself—will be able to read these submissions, and the authors of these works will most likely never experience the public’s reaction to their writings. In fact, most everyone who is currently working on this project with Paterson will never see the results of their efforts, and can only hope that the people to whom they entrust this project will continue their legacy in the ways directed. With hope, their grandchildren might be old enough to purchase a volume of the anthology, but even that’s no guarantee. In a world so consumed with providing a better existence for future generations, how selfless of an endeavor to work on a project the creator will knowingly never be able to enjoy.

Some authors have already begun to submit their anthologies. One can already buy a right to ensure delivery of the anthology when it opens to public in 2114.