Archive for the ‘Blogs to Read’ Category

How the media helped turn the worst recovery in 100 years into a strong economy in stable hands before the 2015 election

October 5, 2018

Prof Simon Wren Lewis in his blogpost takes on UK’s financial media and City economists (non-academic) for painting a rosy picture of UK economy:

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How do you fight against selection bias as you consume information about the world?

September 12, 2018

Scott Sumner responds to the Ted question:

This is my second “Ted talk”.  Ted asked:

How do you fight against selection bias as you consume information about the world?

One answer is to read “everything”, as does Tyler Cowen.

But you may not have the time, in which case I’d focus on a “diverse” set of reading material. This means much more than avoiding ideological bias (although that’s important too.)

Even though he distills quite a few points, that is an awful lot to read…

Why does the Indian Government mandate proprietary software?

September 3, 2018

Prof JR Varma’s Blog is back after a long break and starts with a bang.

He questions government making it mandatory to use proprietary softwares for filing income tax, independent director report and so on:

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World War I, Gold, and the Great Depression

August 28, 2018

Nice post by Hu Mcculloch. He revisits the Great Depression and says it was Gold Standard which was primarily responsible for the deep crisis we had back then.

My own view, after pondering the problem for many decades, is that indeed the Depression was monetary in origin, but that the ultimate blame lies not with U.S. domestic monetary and financial policy during the 1920s and 30s. Rather, the massive deflation was an inevitable consequence of Europe’s departure from the gold standard during World War I —  and its bungled and abrupt attempt to return to gold in the late 1920s.

In brief, the departure of the European belligerents from gold in 1914 massively reduced the global demand for gold, leading to the inflation of prices in terms of gold — and, therefore, in terms of currencies like the U.S. dollar which were convertible to gold at a fixed parity. After the war, Europe initially postponed its return to gold, leading to a plateau of high prices during the 1920s that came to be perceived as the new normal. In the late 1920s, there was a scramble to return to the pre-war gold standard, with the inevitable consequence that commodity prices — in terms of gold, and therefore in terms of the dollar — had to return to something approaching their 1914 level.

The deflation was thus inevitable, but was made much more harmful by its postponement and then abruptness. In retrospect, the UK could have returned to its pre-war parity with far less pain by emulating the U.S. post-Civil War policy of freezing the monetary base until the price level gradually fell to its pre-war level. France should not have over-devalued the franc, and then should have monetized its gold influx rather than acting as a global gold sink. Gold reserve ratios were unnecessarily high, especially in France.

And as there was no Gold Standard during 2008 crisis, the policies should not have reacted asif we are about to face another Great Depression:

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The price impact of removing the penny

August 22, 2018

Nice post by Marilena Angeli and Jack Meaning on BoE’s Bank Underground Blog.

There is a belief that removing pennies will lead to higher inflation as shops adjust price upwards in absence of this short denomination change. They say these arguments are flawed:

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Nobel symposium on Money and Banking

July 30, 2018

The Stockholm School of Economics houses Swedish House of Finance, which is Sweden’s national research center in financial economics.

It recently ran a symposium on banking and finance bringing all who’s who of academia in financial matters. Given the picture of the venue and the stunning backdrop, finance should be least on the minds. Nevertheless, the program is here.

Prof John Cochrane aka Grumpy economist (his blog) summarises the proceedings and papers really well.

  • Day 1  (mainly on banking)
  • Day 2 (mainly on monetary policy)

I attended the Nobel Symposium on Money and Banking in May, hosted by the Swedish House of Finance and Stockholm School of Economics.   It was a very interesting event. Follow the link for all the presentations and videos. (Click on “program.” )

This review is  idiosyncratic, focusing on presentations that blog readers might find interesting. My apologies to authors I leave out or treat briefly — all the presentations were action-packed and even my verbose blogging style can’t cover everything.

“Nobel” in the title has a great convening power! The list of famous economists attending is impressive. And each presenter put great effort into explaining what they were doing, in part on wise invitation from the organizers to keep it accessible.  As a result I  understood far more than I do from usual 20 minute conference presentations and 15 minute discussions.

The first day was really “banking day,” giving a whirlwind tour of the financial economics of banking.

Lots of ideas and discussions to digest on money and banking in just 2 days…

Some Things a Central Bank’s Banker Doesn’t Know About Monetary History

July 27, 2018

BIS chief Agustin Carstens has been speaking against the cryptocurrencies.

Larry White says the central bank’s banker should learn some lessons on mon history.

While it is true, as Carstens notes, that banknotes did not circulate a par nationwide in the United States during the antebellum period, the reason was not fraud but government interference in the form of legal restrictions against interstate branching. Nationwide par circulation was the norm where banks were free to branch, as in Canada and Scotland. When Carstens (p. 7) refers to “the unhappy experience with private forms of money” he ignores the facts. When he suggests that “the experience with currency debasement that has peppered history” should warn us against “the proliferation of such private monies,” he inverts the facts. Currency debasements have been symptomatic of government monopoly in currency, not of private competition. A central bank with a monopoly on currency issue can debase the currency. A single bank in a multi-issuer system cannot, neither legally nor practically. As Adam Smith noted, the greater the proliferation of private note-issuers, the lesser the consequence to the public of the failure of any one of them. The system is robust. A central bank monopoly, by contrast, is a fragile single point of failure.

Well. not just BIS but applies to other central bankers too..

Should central banks get a target to raise productivity?

July 12, 2018

There have been talks in UK to give Bank of England a productivity target

Croaking Cassandra blog points to a survey of economists where all have rejected this idea. The key is not the rejection but to realise that monetary policy and banking regulation are limited in scope.

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How Broadcasters should handle the Prime Minister lying?

June 20, 2018

Nice post by Prof Simon Wren Lewis:

One of the most remarkable polls during that campaign was that more people trusted Trump than Hillary Clinton. How can someone who lies all the time, almost every time he says anything, be trusted more than Hillary Clinton, who has had countless Republican inspired investigations into her affairs and has never been convicted of anything. For some time cognitive linguist and philosopher George Lakoff has pioneered the idea that (among many other things – see for example a Guardian article with Gil Duran) lies that are repeated often enough become associations in people’s minds that they find it hard to combat. So the phrase ‘crooked Hillary’ that Trump repeats all the time has a purpose beyond firing up the base. Equally when Republican’s start investigations into her affairs that alone puts an association of guilt in people’s minds. That is a key reason why before the election they trusted Trump more than Clinton.
In the United States Trump played the media big time, and continues to do so. If the media is not careful the same thing could happen here. The phrase ‘Brexit dividend’ is the equivalent of ‘crooked Hillary’. If it is repeated enough, a sufficient number of people will begin to associate Brexit with a ‘dividend’, whether that dividend is real or not. And in case someone reading this does not know by now, the Brexit dividend is a complete fiction.
…….
But I think its importance goes well beyond Brexit. Why don’t politicians lie more often to enhance their cause? Some have integrity, but for the others the deterrent is being found out. But being found out depends critically on the media calling out lies when they happen. And when a large section of the media are very selective about how they treat lies depending on who said them or why they were said, or indeed are often the source of these lies, society has a serious problem.
That is the situation in the US with Fox and Trump and in the UK with the right wing press and Brexit or the Conservatives more generally. How the print media in the US and the broadcast media in the UK treats lies has therefore become critical. With lies ‘she said, he said’ type reporting is just not sufficient to defend democracy. Now often it is quite difficult to prove someone is lying, but if I could delineate a barefaced lie as one where it is very easy to establish the truth, then the Brexit dividend is a barefaced lie. OBR documents, accepted by the government as the basis for their tax and spend decisions, show quite clearly that the money has already been spent. You cannot spend the same money twice.
The right wing Brexit press have already supported this lie. As most of their readers also watch broadcasters, it is imperative that these broadcasters inflict some political damage on those who tell the lie. If they do not, the lesson certain politicians will draw is that they too can get away with barefaced lies, encouraging the kind of behaviour we see with Trump. For that reason broadcasters have to speak truth to power, otherwise the non-partisan media becomes complicit in propaganda or just a mouthpiece for politicians.
Hmm.. One could say this is happening in quite a few countries. Media is just playing to the government gallery and making lies appear as profound truth…

Gift receiving at the central bank: Bringing transparency and tightening the rules…

June 12, 2018

Croaking Cassandra Blog posts on this issue of giving gifts to the central bank. One remembers how during Diwali most of the financial firms competed to give the classiest of gifts to the central bank officials. The idea was to be counted and get to know the regulator and if possible be in the favored books. The practice was stopped some years ago and not sure what the status is of today.

It seems in New Zealand, the central bank has released a list of gifts received since July 2016. The gifts vary from a computer mouse to a jar of pickle to movie tickets and what not.

The blogger says that this should not be acceptable at all even for courtesy sake:

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The future of Cash: Iceland vs Sweden

May 18, 2018

JP Koning in another brilliant post tells this contrasting story of Sweden and Iceland. In former, cash is declining whereas in latter cash usage is rising.

The reason for Iceland’s liking for cash is the banking crisis of 2008:

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Intelligent Economist: Top 100 economics blogs for 2018

May 15, 2018

A new ranking has been released by intelligent economist:

https://www.intelligenteconomist.com/economics-blogs/

Mostly Economics continues to feature in the list. It is highly humbling and thanks to all the visotors and supporters for their encouragement.

Meanwhile, blogging has been absent for past few days as one is traveling. Hope to resume soon.

Do send in comments and suggestions to make the blog better and be relevant in 2019 as well.

Norway’s central bank starts a blog..

May 9, 2018

After Bank of England’s Bank Underground blog, St Louis Fed’s blog, Norway’s central bank  also starts its own blog. It is named Bankplassen as the office of the central bank is located at Bankplassen address in Oslo.

The central bank Governor Oystein Olsen welcomes to the blog. Here is the English translation:

Openness is a key word for everything we do in Norges Bank. When we launch our own blog today, it is to give our own employees the opportunity to discuss open-ended professional questions and to provide everyone who wants to observe and participate in the debate.

The name is not randomly selected. Norges Bank has held office at Bankplassen in Oslo since 1830. The “Bankplace Blog” is intended to give associations an open space where opinions and views are exchanged freely.

I have to admit that the blog format is a bit new to me. But as a long-standing researcher, I know how much energy and knowledge it is to extract from a good discussion with skilled professionals. Today, such discussions can take place in other arenas than before. The bankplace blog is an attempt from our side to create a new arena.

For those who have followed Norges Bank closely in recent years, this blog will not be a genuinely new one. Every year our professionals publish a number of signed publications under vignettes like Current Comment, Working Paper, Staff Memo and Scripts. In the form, posts on Bankplace blog will be closest to Current Comment, but the degrees of freedom are many. I hope and think we will see variation in both width, depth and length.

In all the signed publications published today by Norges Bank, the content of the authors’ bill stands – it does not necessarily represent Norges Bank’s official view. The same will apply to Bankplace blog.

One of the biggest benefits of the blog format is that it encourages immediate response. You can comment on posts and you can share posts on other digital platforms. There is an opportunity I hope you as reader know to make use of.

Good luck and good reading!

Central banks are slowly warming upto blogs. The blogs clearly help communicate research and new ideas to a wider audience in an informal way.

Recently Mark Carney of Bank of England said on the Bankunderground blog:

Last year, less than 0.1% of all GCSE students and 4% of A-level students studied economics. Part of the problem is that because of its unfamiliarity, economics can seem unappealing. The Royal Economics Society suggests people’s lack of enthusiasm for the dismal science is based on a narrow (and
dry) perception of the subject and its masters.

As you might expect, I disagree. And so do most students, once we meet them. They are usually surprised by the breadth of topics that economists consider. For example, colleagues are currently working on issues such as the impact of Artificial Intelligence on the future of work, the role of the financial system in combatting climate change, and the value of diversity in decision making .A quick visit to our Bank Underground blog will reveal articles on the impact of mental health, crypto currencies and driverless cars on jobs, growth, inflation and wellbeing.

Hope to read some interesting stuff on Bankplassen blog as well..

For home price trends in London, check the Tokyo listings…

April 16, 2018

The key reason behind sub-prime crisis spreading across US was how home price trends became similar across the country.

In its new research, IMF points how the home price trends are becoming similar across the world:

If house prices are rising in Tokyo, are they also going up in London? Increasingly, the answer is yes.

In recent decades, house prices around the world have shown a growing tendency to move in the same direction at the same time. What accounts for this phenomenon, and what are the implications for the world economy? These are questions that IMF economists explore in Chapter 3 of the latest Global Financial Stability Report.

Our study of 44 cities and 40 advanced and emerging-market economies shows that the growing integration of financial markets plays an important role. As a result, housing markets in one country are more sensitive to swings in another. Policy makers should pay attention, because the heightened tendency for house prices to move in tandem may signal greater odds of an economic slowdown.  An economic shock in one part of the world is more likely to affect housing markets elsewhere.

Why is this happening?

  • Interest rates: The world’s major central banks have kept interest rates unusually low for a long time in a bid to stimulate growth. That has produced a ripple effect of low borrowing costs, including cheap mortgages, across the globe, which has helped push up prices.
  • Institutional investors, private equity firms, and Real Estate Investment Trusts have been increasingly active in major cities such as Amsterdam, Sydney, and Vancouver as they seek out higher returns.
  • Wealthy individuals have also snapped up properties in major financial centers in search of safe places to invest their money (and perhaps to live). One result: because the wealthy prefer high-end properties, their investments push up prices in expensive neighborhoods in places like New York and London at the same time.
  • Economic growth: In addition to financial factors, coordinated movements in the real economy contribute to the phenomenon. In 2017, growth picked up in 120 economies, accounting for three-quarters of world GDP. It was the broadest synchronized growth surge since 2010. Economic growth is a major driver of demand for homes, and hence prices.

All of this suggests that house prices are starting to behave more like the prices of financial assets, such as stocks and bonds, which are influenced by investors elsewhere in the world. In countries that are more open to global capital flows, prices of both homes and equities tend to be more synchronized with global markets.

 

Playing a money game: Fiat money or not…

March 30, 2018

JP Koning in his super blog plays a money game.

He starts with an initial setting and then asks whether we say we now have fiat money in the economy.

People bandy the term fiat currency around a lot, but what exactly does it mean? None of us wants to live in a Babel where people use fiat to indicate twenty different thing. So let’s try to zero in on what most people mean by playing a game called fiat-or-not. I will describe a monetary system as it evolves away from a pure commodity arrangement and you will tell me when it has slipped into being a fiat system. (The technique I am using in this post cribs from a classic Nick Rowe post).

So let’s start the game. 

There are 9 stages and not clear at which stage we can say fiat money has taken shape:

Here is a collection of unconnected thoughts on the fiat-or-not game.

A) My guess it that readers will have chosen different stages as their preferred debut for fiat money. This is a bit tragic, since with no commonly-accepted definition for the term, most debates about fiat money have been and will continue to be meaningless. 

B) We apply our definitions like cookie cutters to the real world. So if you chose step 7 (when banknotes became permanently irredeemable) as your flipping point, then 1971 would be a very important date in your scheme of the world since this is when the U.S. permanently removed gold convertibility. 

But if you chose step 9 as your transition point to fiat, then the global monetary system is not currently on a fiat standard, since central banks have neither closed their doors nor donated their assets to charity. So 1971 really isn’t an interesting date. I’m aware of only one country on a step 9 fiat standard: Somalia. Its central bank burned down yet Somali shilling banknotes continued to circulate. And ironically enough, if we choose to adopt a step 9 definition of fiat money, then bitcoin—which was designed to destroy central bank “fiat” money—is itself fiat, because it is unbacked, whereas most central bank money is not fiat.

What I’ve described is the Borges problem. Categories pre-digest the world for us. We get very different results depending on what definition we use and how we apply it to the world. 

C) I think many readers associate fiat with hyperinflatable.

D) Fiatness, fiatish? If we can’t agree on what constitutes fiat-or-not, maybe we can agree that there might be a fiat scale, from pure fiat to not fiat at all, with most monetary systems existing somewhere in between. I am already on record advocating moneyness over money, so this fits with the general them of the blog. On the other hand, fiatness seems a bit of a cop-out.

E) We don’t need gobbledygook like fiat. The term carries too much baggage. Let’s select a more precise set of words, then apply them to the real world in order to understand what our monetary systems were like, how they are now, and where we are going. Until we settle on these words, let’s avoid all conversations with the term fiat in them. 

How we just assume fiat money without really figuring what it means. JP’s post says there are several layers to the issue.

Do we need banks?

March 21, 2018

Prof JR Varma of IIMA has a few related posts which question the role of banks. He argues the need to move from a bank dominated financial system to a more market driven one.

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When two Central Bankers walk into a Restaurant, and should central bank be a pawnbroker for all seasons?

March 1, 2018

Superb post by Conversable Economist.

He links to a recent speech by Merv King. It has this interesting anecdote on how Paul Volcker paid for the lunch with King by cheque. But Volcker forgot to put a date on the cheque and it bounced!

Then King says central banks should be more like pawnbrokers for all seasons. Willing to lend to banks based on their forward looking estimate of collateral.

It is interesting to see the word pawnbroker being used by a former central banker as former has always been looked down upon by the elite central bankers. Now the idea is to emulate them..

 

Retired politicians in demand in New Zealand..

February 19, 2018

Michael Reddell posts about the topic. 

He says  we need to restrict appointment of politicians/central bankers to take up other jobs post retirement:

Until just over a year ago, Bill English had been Minister of Finance for eight years.  In that role he had responsibility for the framework of legislation (primary and secondary) governing the prudential regulation of banks,  non-banks, and insurers.  He was minister responsible for the Reserve Bank of New Zealand, the prudential supervisory agency (including for banks).  He appointed the people who appointed the new Governor (and – single decisionmaking – supervisor). His department –  The Treasury –  was a key participant in the trans-Tasman banking council.  Even in his year as Prime Minister, there was no sign that he had lost interest in matters economic and financial.

It would be a dreadful look if a retiring former Minister of Finance went (more or less) straight from politics onto the board of a Bank.   It would be almost as bad as if a retiring Governor of the Reserve Bank made a similar move.   The issue –  especially for the Minister of Finance case –  isn’t about inside information; ministers aren’t usually privy to much individual institution data, and the broad intended sweep of policy (a) usually isn’t that secret, and (b) is somewhat specific to particular governments.    It is about incentives, appearances, and our ability to be reasonably confident that our governors are governing in the public interest and not in their own interests.

Probably few people go into politics initially for the post-politics opportunities.  Nonetheless, people need to feed their families, and fill their days, and even if you eventually get to the very top, even being Prime Minister doesn’t last forever.   Bill English is only 56, and the current Prime Minister –  even if consistently successful –  is likely to be out of Parliament by the time she is 50.   And –  even in New Zealand –  private sector directorships can pay pretty well (it was suggested that John Key might be getting $200,000 per annum for chairing the ANZ –  a big bank to be sure, but an unlisted 100 per cent subsidiary of an Australian parent, pretty substantially controlled by that parent).

Whatever the sector, a Cabinet minister who legislates/regulates in ways which are welcomed by the regulated industry are much more likely to find the post-politics doors open than one who regulates in a way the industry finds costly or inconvenient.  It isn’t just an issue in banking – it could be telecoms, or electricity, or transport, export education or whatever.   I’m no great fan of most business regulation, but it exists –  and the community as a whole has made a decision that such regulation is necessary or desirable.  If so, it is easy to envisage cases of a conflict between the public interest and the private interests of the regulated entities.

I’m not suggesting that Bill English (or John Key) made any decisions during their terms in office for reasons other than some mix of their view of the best thing for the country, and their view of how best to get re-elected.     But the incentives, and risks around them. are things that need managing.  It would set a dreadful example if Bill English shortly turns up on the board of a bank (in John Key’s case, the concern might be more about his membership of the Air New Zealand board –  a majority state-owned company, with ownership sold down by Key’s government, and where Key himself had until quite recently been Minister of Tourism).

Hmm..

The financialization of everything: How finance is reshaping the ‘rules of the game’?

February 15, 2018

A long post by Servaas Storm. But we know this narrative of how finance controls pretty much everything we do today.

The shift in financial intermediation from banks to financial markets, and the introduction of financial market logic into areas and domains where it was previously absent, have not just led to negative developmental impacts, but also changed the ‘rules of the game’, conduct and outcomes—to the detriment of ‘inclusive’ economic development and in ways that have helped to legitimize—what Palma (2009) has appositely called—a ‘rentiers’ delight’, a financialized mode of social regulation which facilitated rent-seeking practices of a self-serving global financial elite and at the same time enabled a sickening rise in inequality. Establishment (financial) economics has helped to de-politicize and legitimize this financialized mode of social regulation by invoking Hayek’s epistemological claim that (financial) markets are the only legitimate, reliably welfare-enhancing foundation for a stable social order and economic progress.

….

Rather than letting financial markets discipline the rest of the economy and the whole of society, finance itself has to be disciplined by a countervailing social authority which governs it to act in socially desirable directions. One famous account in the Talmud tells about Rabbi Hillel, a great sage, who when he was asked to explain the Torah in the time that he could stand on one foot, replied: “Do not do unto others that which is repugnant to you. Everything else is commentary.” If there is a one-foot summary of the literature reviewed in this introduction, it is this: “Finance is a terrible ‘ephor’, but, if and when domesticated, can be turned into a useful servant. Everything else is commentary.”

I don’t think this was the vision of markets which Hayek gave us. The markets are heavily regulated with numerous conflicts of interest present across the entire chain.

The Anchal Service: The postal services used in Travancore and Cochin

February 5, 2018

Brilliant post by Maddy’s Ramblings blog. This blog is the goto blog on nuances of Kerala’s history which is quite amazing to learn. The blog is an inspiration of sorts of being really meticulous in research and using the blog to share it with people.

In this post, he writes about the postal services used in Travancore and Cochin areas called Anchal Service (Wiki entry):

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