Archive for the ‘Central Banks / Monetary Policy’ Category

South Africa’s central bank – ownership, mandate and independence

January 28, 2019

Discussions over independence of South Africa’s central bank continue.

Prof Jannie Rossouw of the University of the Witwatersrand in this piece looks at the issues.

In recent months, various debates about the South African Reserve Bank have focused broadly on three aspects – its shareholding, its mandate and its independence.

The three debates are somewhat convoluted. They are indeed three different issues, but they are interlinked.

Let’s turn to the issue of ownership first.

The South African Reserve Bank is one of only eight central banks in the world with private shareholders. The others are in Belgium, Greece, Italy, Japan, San Marino, Switzerland and Turkey.

The debate about shareholding in South Africa’s Reserve Bank centres around the issue of nationalisation. Some political players, such as the third largest party – the Economic Freedom Fighters – are calling for the ownership of the Bank to be transferred from current private shareholders to the South African government and has tabled a bill in Parliament to achieve this objective.

The issue is very charged. But it’s also confused and not very well understood. There’s an assumption that a change of ownership would automatically mean a change in the role the Bank plays. This isn’t the case because in fact the Bank’s shareholders play no role in its mandate. In that sense it doesn’t matter who the shareholders are. Because they can’t affect its mandate, nationalisation won’t affect the independence of the central bank.

But there are other ways in which the Bank’s ability to do its job can be undermined. This is where the Bank’s primary mandate comes in.



The Founding of the Federal Reserve, the Great Depression and the Evolution of the U.S. Interbank Network

January 28, 2019

Interesting paper by Matthew Jaremski and David C. Wheelock:

Financial network structure is an important determinant of systemic risk. This paper examines how the establishment of the Federal Reserve and Great Depression affected U.S. interbank network structure. Seeking liquidity sources, banks generally preferred to connect to Federal Reserve member banks in cities with Fed offices or clearinghouses. Overall network concentration declined initially as banks connected to Federal Reserve cities other than New York, but increased in the Depression. Banks that survived the Depression generally had higher percentages of connections to Federal Reserve cities and to correspondent banks that also survived.

More specifically, Federal Reserve was key to Depression in many ways:

The Federal Reserve was intended to reduce the banking system’s reliance on the interbank network, and especially the concentration of the system’s reserves in New York City. Although the share of interbank deposits held by major New York City banks did fall after the Fed was established, previous studies have not examined how the interbank network changed with the introduction of the Fed. Using newly digitized data on the interbank relationships of every U.S. depository institutions in 1900, 1910, 1919, 1929 and 1940, we quantify changes in network concentration and other aspects of network structure over four decades.

We show that while the banks most central to the network remained those located in New York City and other major centers, the regional Federal Reserve cities took on a more important role in the network after the Fed was established and again during the Great Depression. Ironically, by pushing the
network toward the regional Fed cities, the System’s founders may have inadvertently made the banking system more vulnerable to regional liquidity shocks and to the responsiveness of local Federal Reserve Bank officials to those events.17

Interbank connections were a conduit for bank distress during the Great Depression. Banks with correspondents that failed or otherwise closed were themselves more likely to close during the Depression. Banks apparently responded to the Depression by linking even more to correspondents in cities with Federal Reserve offices, especially to banks in New York City, which saw a relative increase in correspondent links between 1929 and 1940. Thus, while the establishment of the Federal Reserve altered the structure of the interbank network, the Fed’s presence neither eliminated the network nor prevent it from transmitting shocks across the banking system. Moreover, the amplification of distress through the network in turn contributed to events that further altered the network’s structure while at the same time having even more profound long-term impacts on the regulation of the U.S. banking system.



New rule will give surplus reserves of Sebi, pension regulator to govt

January 25, 2019

It is not just about RBI’s reserves, but about other regulators too.

Shrimi Choudhary reports in BS:


Federal Reserve marks the 100th anniversary of its data on industrial production

January 25, 2019

Nice to see Fed marking 100 anniversary of an economic data: industrial production.

The publication on Friday of the Federal Reserve Board’s monthly statistical release on industrial production and capacity utilization marks the 100th anniversary of Board data on industrial production. The index has kept pace with an ever-evolving industrial sector by providing information that spans from the rise of the modern factory through the digital age.

The Board began collecting information about industrial production to satisfy the Federal Reserve’s need for timely and relevant data on the U.S. economy. The Board’s measure of industrial production remains an important economic indicator today and is frequently used by academics, businesses, and policymakers.

The index originally divided output into 55 categories and now includes 300, reflecting an increased ability to track the diversity and changing composition of the industrial sector. For example, in 1919, textile manufacturing represented nearly a quarter of the index. Almost the same proportion is represented in 2019 by the combination of motor vehicles and parts, aircraft, and oil and gas extraction. Textiles now represent less than 1 percent of the index. A short history of the index that describes its introduction and tracks its changes and improvements over the past century is available on the Board’s website.


I had earlier pointed to history of other macro data in US such as output, inflation and unemployment. We now have some history of industrial production data as well:

Ever since the Federal Reserve was founded in 1913, understanding current business conditions has been a central focus in pursuing its mission of a stable and secure financial system. Less than a year after the first Board members took their oaths of office, the organization issued the inaugural monthly Federal Reserve Bulletin, which included narrative summaries of general business conditions in each of the 12 Federal Reserve Districts.

Over the next few years, the monthly reports from the Federal Reserve Districts became more statistically oriented. At the same time, private industry was in the process of reorganizing to supply the country’s effort in World War I and would soon thereafter transition to a postwar economy. In order to track the changes that were taking place, the Board in 1919 began publishing monthly tables containing data on the production of different goods, such as iron and steel, cotton and wool, and pulp and paper.2

By early 1922, the tables on the physical volume of trade had expanded to show a large number of items. To present this information in a “more compact and better coordinated form,” the Board developed three indexes of industrial activity: manufacturing, mining, and agriculture.3 These monthly indexes were published back to 1919, and they used the average of monthly activity in that year as a base. By the end of 1922, a second set of indexes—narrower in coverage but based on more refined methodology—was introduced.4 These new measures were made available by the 25th day following the reference month.

Nice stuff..

Does inflation targeting make the poor poorer?

January 23, 2019

Recently Prof Abhijit Banerjee said that RBI’s inflation targeting has made the agrarian crisis worse.

Nice bit…


Uproar over paintings at Iceland Central Bank

January 23, 2019

Reported in Iceland Review:


Strengthening the capacities of the system for fight against counterfeiting of the euro

January 23, 2019

Interesting speech by Ms Emilija Nacevska, Vice Governor of the National Bank of the Republic of Macedonia.

She talks about Twinning Project which is a European Union instrument for institutional cooperation between Public Administrations of EU Member States and of beneficiary or partner countries. The beneficiary countries could be those who want to be part of the Union and those who do not want to be part of the Union. One of the expertise is to build capacities to fight counterfeit of Euro:

It is my honor and pleasure to greet you on the behalf of the National Bank and to welcome you to today’s event held in our institution, marking together the beginning of this very important Twinning Light Project aimed at strengthening the capacities of the institutions involved in the system for fight against counterfeiting of euro. 

At the very beginning of my speech, I would like to express the gratitude of the National Bank to the European Union, because it has recognized the determination of our key institutions responsible for fighting money counterfeit to put their maximum in establishing a strong and efficient system for protection of the national, as well as the financial interests of the Union. Thank you, because the allocation of funds from the pre-accession funds for the implementation of this Project, means a trust that we are ready to work on strengthening the institutional capacity and on the mutual cooperation in order to implement the recommendations that will arise from the project activities. 

I am sure that we will justify the trust. Not only with the level of our commitment to the Project in the next eight months, but also with the willingness to implement all necessary activities for establishing a strong and efficient system for fight against counterfeiting of euro in the country. These activities are already outlined in the strategic commitments of our institutions, because our ultimate goal is to provide a system that, in all aspects, will be at the level of the system of a European Union member state. Only with full dedication, readiness and professionalism, the trust will be fully justified and we will prove that the Project was indeed successful – that the 250,000 Euros intended for its implementation were channeled in the right direction.

Expertise is to be built at multiple levels:

In the long run, this project will simultaneously be an investment for improving the operations not only of the National Bank and the Ministry of Interior, but indirectly also of other institutions that are actively involved in the system for fighting counterfeiting money: the Customs Administration, the Financial Police Office of the Ministry of Finance, the Public Prosecution Office and the judicial authorities. I believe that after the implementation of this Project, our interinstitutional cooperation in the field of monitoring and prevention of counterfeiting banknotes and coins will be further developed. I believe that very soon after the completion of the project activities, we will jointly state and announce that our national system for fighting counterfeit is at a higher level, compatible with the systems of the EU member states.  


Euro’s complexity is mindboggling…

How California stayed with gold when the rest of the U.S. adopted fiat money?

January 23, 2019

Brilliant JP Koning in this brilliant post looks at this 1861 US monetary history. In this case, California refused to adopt greenbacks which were used in other states and continued to accept gold payments.

We are ten years into the age of bitcoin. But people are still using national currencies like yen, dollars, and pounds to buy things. What does history have to say about switches from one type of monetary system to another? In this post I’ll dig for lessons from California’s successful resistance to a fiat standard that was imposed on it in the 1860s by the rest of the U.S.

Not long after the war American Civil War broke out in 1861, a run on New York banks forced most of the country’s banks to stop redeeming their banknotes with gold. A few months later Abraham Lincoln’s Union government began to issue inconvertible paper money in order to finance the war. These notes were popularly known as Greenbacks.

$1 legal tender note, or greenback

Thus the 19 states in the Union shifted from a commodity monetary standard onto a fiat monetary standard. But Californians, who had been using gold as a payments medium for the previous decade-and-a-half, chose not to cooperate and continued to keep accounts in terms of gold. As a result, California stayed on a gold standard while the rest of the Union grappled with fiat money.

This had very different repercussions for prices in each region. As the Union issued ever more greenbacks to finance the war, the perceived quality of these IOUs deteriorated. Through much of 1863 and 1864, their price fell relative to gold. Because prices in the Union were set in terms of greenbacks, consumer and wholesale prices rose rapidly.

U.S. Index of Wholesale Prices (NBER)

In California, on the other hand, prices continued to be set in gold. Thus Californians did not experience significant inflation during the Civil War.


Why so?

Why did the east so easily switch onto a fiat dollar standard whereas California continued to define the dollar in terms of gold? By the 1860s, most Americans who lived east of the Rockies dealt primarily in banknotes. These notes, which were issued by private banks and convertible into gold on demand, circulated widely. Gold coins, which were heavy and prone to wear, were largely confined to bank vaults.

But Californians had never been fond of banknotes. The 1849 First State Constitutional Convention had prohibited the chartering of banks and issuing of bank notes:

but no such association shall make, issue, or put in circulation
any bill, check, ticket, certificate, promissory note, or other
paper, or the paper of any bank, to circulate as money
[California, 1853 #64, Article IV, Section 34]

Suspicion of banknotes ran so strong in California that when businessman Samuel Brannan tried to establish a note-issuing bank in 1857, the following was printed in the Evening Bulletin:

Mr. Brannan, attempts to violate the Constitution of the State, and to fasten upon the community that most pernicious of all evils, a shin-plaster currency….The evils of shin-plaster currency are so great, and the wishes of nine-tenths of our people are so bitterly opposed to its introduction, that we call upon every individual who has any regard for the interest of our State financially or otherwise, to repudiate Mr. Brannan and his shin plasters. (Cross, 1944)

According to Cross (1944), people referred to banknotes as shin-plasters because they were about the size of the plasters put on the injured shins of farmers and other outdoor workers.

Needless to say, Brannan’s notes never took hold. In place of banknotes, Californians had always preferred to pay each other with physical gold. With the discovery of the yellow metal in 1848 in California, the state had plenty of the stuff. Gold dust, despite its inconvenience (see below) was a popular early medium of exchange. Later on, private and government-issued gold coins also became important. Non-chartered private banks existed, but they issued only deposits, not notes.


He says same thing goes for bitcoin as well.

Californians rejected the greenback because they had long adhered to gold as a form of payments. Any given merchant expected the rest of the mercantile community to continue paying with gold coin, which made it costly to adopt greenbacks. The reverse happened in the east, the monetary system tipping towards the more familiar banknote. Even as the greenback inflated, easterners still preferred to set prices in terms of paper. It was too costly for an individual merchant to shift onto gold given that every one else already accepted paper.

This same stickiness explains why new technologies like bitcoin haven’t got much usage as a way to pay. It also accounts for why Venezuelans have been slow to shift away from a bolivar monetary system to a dollar-based one despite the collapse of the bolivar. When groups of people collectively adopt a habit, this habit is very difficult to change.


RBNZ wins award for its excellent financial dashboard (example for other central banks to follow…)

January 22, 2019

Central announced the winners for the year 2019. In the initiaitive of the year category, it gave the award to RBNZ for its financial dashboard:

While adherence by central banks and regulators to the Basel Accord provides important levels of bank transparency in addition to stock exchange and company account disclosures, information can be hard to pull together in a meaningful manner. And very few central banks have opened up their financial system to public scrutiny to quite the same level as the Reserve Bank of New Zealand.

Public disclosure plays a particularly important role in New Zealand because of the central bank’s ‘light touch’ and comparatively ‘lower-intensity’ approach to prudential supervision, and because there is no explicit government guarantee for deposits, Tobias Irrcher, a policy adviser for the financial system policy and analysis department at the RBNZ, tells Central Banking.

“The sheer volume of disclosure had become very large, and there were some issues about how comprehensible it all was and the fact that it was all in different places. It was difficult to compare one bank with another, and thus banks didn’t come under widespread scrutiny,” adds his colleague Toby Fiennes, head of the financial system policy and analysis department. “We wanted to invent something that was accessible.”

In May 2018, the central bank launched its Financial Strength Dashboard to increase the accessibility of the disclosure information by banks to the public. The dashboard offers a graphical overview of all major banks’ capital positions, liquidity, asset quality, profitability, balance sheet composition and credit concentration. In all, it contains more than 100 individual metrics on the financial strength of New Zealand’s banks.

Along with graphic representations, the central bank provides simple descriptions of the data available to support financial literacy. The data is also provided in an Excel file for researchers to analyse in greater depth. “We had an internal mantra of ‘insights over information’. It’s not good enough to just put numbers in a table on a website and expect users to make sense of that,” says Irrcher.


For the dashboard to be effective, people need to access and use the information. If this includes professional investors, retail depositors and rating agencies, its effectiveness as a disciplinary force will be greater still.

The dashboard currently receives more than 11,000 visits a quarter – a large increase compared with its predecessor, which typically received about six users a day and 500 in a quarter. More than 30% of the current users are repeat visitors, which suggests a number of people are using the dashboard as a reference tool. “Based on the user statistics to date, the dashboard has successfully broadened the audience for prudential disclosures far beyond the point where it was at before. This is probably the single best indication that the dashboard is having the desired impact,” says Irrcher.

Retail depositors can access this information either directly or through “super-users”, those who use the information for their own purposes or to help others understand risks, such as rating agencies, banking academics and financial journalists, says Fiennes. This improves their ability to make informed decisions on which they bank use.

“When you look at a graphical presentation, some relationships stand out that maybe you were not fully aware of before. For example, the extent of concentration in the banking sector or interesting variations in the opinions of credit rating agencies,” explains Irrcher.

The banks can also use the dashboard to benchmark themselves within the market. “We can now see more about our competitors,” Annis O’Brien, head of external reporting at ANZ New Zealand, tells Central Banking.

Increased usage should also ensure less errors are made, and if they are, they are quickly corrected.

I just saw the dashboard website. It is indeed excellent and worthy of an award. One can look at most of the indicators across the NZ based banks. Interesting to note that two Indian banks -Bank of Baroda and Bank of India – have very high capital ratios.

All other central banks should emulate RBNZ…once again the pioneer…

20 years of Euro: a glass half-full or half-empty?

January 21, 2019

My new piece in moneycontrol.


Examining the trade-off between price and financial stability in India

January 21, 2019

Ila Patnaik, Shalini Mittal and Radhika Pandey of NIPFP in this recent paper find trade off between price and fin stability:

In recent years, many emerging economies including India have adopted inflation targeting framework. Post the global financial crisis,
there is a growing debate on whether monetary policy should target financial stability. Using India as a case study, we present an empirical
approach to assess whether monetary policy can target financial stability. This is done by examining the trade-off between price and
financial stability for India. Using correlation between price and financial cycles, we find that a trade-off exists between price and financial
stability. Our finding is robust to a series of robustness checks. Our study has implications for the conduct of monetary policy in emerging
economies. Presence of a trade-off may constrain the ability of a central bank in emerging economies to target financial stability with
monetary policy instrument.


Turkey’s central bank pays early interim dividend…

January 21, 2019

Turkey’s central bank pays an early dividend worth 33.7 billion Lira (HT:

Apparently, the dividends are paid annually in April as per the law. But the law was amended to allow an interim dividend..



Central Bank of Brazil looks through its 54 year histiry

January 21, 2019

Nice bit from the Central Bank. It is all in Portuguese so do press the translate option.

The Central Bank of Brazil is more than 50 years old. The conduct of oral interviews with personalities who contributed to its construction is part of the memory of this institution, which is so closely linked to the economic trajectory of the country.

The interviews allowed not only a tour of history, but also to experience the crises, conflicts, choices made and the opinions of those who gave a period of their lives for the construction of Brazil. At the same time, they constitute complementary material to traditional historical sources.

The set of statements clearly demonstrates the process of building the Central Bank as a state institution, persistent in fulfilling its mission. The concern with the construction of an organization with technical profile pervades all the interviewees. At the same time that they were building the structure, they sought to adopt the necessary economic policy measures to achieve their mission.

Our expectation with the publication of these interviews is to contribute with a better understanding about the evolution of the Institution and its performance and stimulate the search for knowledge about the economic history of the country and about how the Central Bank pursues its objectives of guaranteeing the stability of the power of purchase of the currency and the soundness and efficiency of the financial system.

One just gets profiles of the interviewed personalities in English. The interviews remain in Portuguese and one hopes the central bank translates them to share it with the wider audience.



India’s Corporate Bond Market: Issues in Market Microstructure

January 17, 2019

Nice piece by Shromona Ganguly of  RBI in the January Monthly Bulletin.

Development of corporate bond market in India remains crucial for meeting the financing requirement of industry and infrastructure sector. Despite various initiatives undertaken in the past, there is little change in the overall market microstructure of the corporate bond market in India. At this backdrop, this article explores the available statistics on corporate bond market in India during recent times (2010-18) to analyse the various demand and supply side factors, which impede the growth of corporate bond market in India. It is found that the gradual increase in proportion of market-based sources in total debt financing by non-financial companies is confined only to the larger-sized firms. Though finance and infrastructure companies dominate the corporate bond market, mutual funds are playing an important role in diversifying the issuance base of the market. Empirical analysis suggests significantly higher risk-premia associated with lower-rated bonds in the private placement market.

Remembering CD Deshmukh on his 123rd Birth Anniversary…

January 15, 2019

Nice tribute from Remya Nair:

In 1943, the Reserve Bank of India got its first Indian governor in Chintaman Dwarkanath Deshmukh, a civil servant luminary who went on to do a great many things for the country in the early years after Independence.

Deshmukh’s appointment to the independent regulatory body came at a time when India was ruled by the British, and predictably in the face of opposition from various sections of the government who wanted the tradition of a European helming the central bank to continue.

But he battled all these odds to become the third governor of RBI.

What worked in his favour was his long association with the bank. Deshmukh was appointed as a government director on the bank’s board and subsequently held the posts of secretary and deputy governor before being elevated to become a governor.

His association with the central bank did not cease after he demitted the Governor’s office in 1949. Deshmukh was later appointed as the union finance minister marking a 17-year long association with the central bank.

On his 123rd birth anniversary, ThePrint takes a look at the life of the civil servant who served the country in various capacities.

We need more and more biographies of people like Mr Deshmukh…

Agricultural Loan Waiver: A Case Study of Tamil Nadu’s Scheme

January 10, 2019

Deepa S. Raj and Edwin Prabu of RBI have this interesting and timely paper:

This paper examines the impact and implications of Tamil Nadu’s agricultural loan waiver scheme of 2016, based on data collected through a field survey of seven districts of the state as well as farm loan transactions data obtained from select primary agricultural co-operative credit societies. The state government’s loan waiver scheme was applicable only to agricultural loans availed by small and marginal farmers, while other farmers with land holdings of above 5 acres were not eligible for the waiver benefit.

Empirical findings using Regression Discontinuity Design (RDD) suggest that in the immediate post-waiver period near the cut-off acreage of 5 acres, the probability of obtaining credit was higher for non-beneficiary farmers than for beneficiary farmers. However, the differentiation in post-waiver access to credit to the beneficiary farmer and the non-beneficiary farmer comes down as the supply of funds for agricultural loans normalises.

The paper also has a summary of the previous debt waiver schemes and their impact….

Remembering 2018: Year of economics’ anniversaries and milestones

January 9, 2019

The blog has been on a long break. Hoping to get back on track.. Here is the first post for 2019.

The year 2018 was quite historic given several anniversaries and milestones completed during the year. We just saw how the leaders of developed world had congregated at Paris recently, paying homage on the 100th anniversary of end of World-War-I. World War-I in turn shaped the worldwide polity and economy over the years whose anniversaries will come in future.

Having said that, the year 2018 was quite a remarkable year for anniversaries and birthdays in the field of economics, finance and business as well.  In this article I list these key milestones.

I start with central banks where we saw several such birthdays. The world’s first central bank –Riksbank of Sweden- celebrated its 350th year amidst celebrations in Stockholm. Riksbank hardly started as a central bank and was more like a bank to serve the monarchy. The central banking as a concept developed with evolution of Bank of England in the 19th century. Sweden was also the first country to start banknotes in Europe. This is ironical 2018 also marks 10th year of bitcoin, an idea which threatened the mere idea of a central bank and physical currencies.

Next we saw Denmark Central Bank celebrate 200 years. The other Scandinavian central bank of Norway was established 2 years ago in 1916. All these three central banks started mainly to counter the over-issuance of banknotes by private banks.

The next set of central banks in the list are those in Ireland, China, Pakistan and Malta which celebrated 75th, 70th, 70th and 50th birthdays. In particular, the history of State Bank of Pakistan is interesting as it was established on 1 July 1948, under highly trying circumstances after the Partition.

Some countries celebrated anniversaries of certain currencies which is different from anniversaries of central banks. For instance, in 1868 made Pestada as the official currency and let Escudo disappear, marking 150 years since the event. We also Czech authorities commemorate 100 years of their currency Koruna (after dissolution of Austro-Hungarian empire after World War-I) and Armenians celebrate 25 years of their currency Dram (after breaking with the USSR).

For connoisseurs of Indian numismatic history, 2018 also marks 100 years of Osmania Sicca Rupee, the currency issued by Princely State of Hyderabad (Kashmir also issued its own currency but circulated briefly). Hyderabad always wanted to issue their own currency but were denied by British. They finally got an opportunity in 1918, as British India struggled with supplies of silver during World War I. Infact, both notes of Rupee 1 and Rupee 2.5 were issued for the same reason in 2017. Post-Partition, Osmania Rupee went through interesting times as the Hyderabad State first wanted to be a part of Pakistan and later was made part of Indian Union.

Talking about British empire, the year also marked the 350th year of start of British empire in India. The East India company was leased a bunch of islands (Bombay) by the British Crown in Mar-1668 and they landed on the islands in Sep-1668. Benita Fernando looked at the spate of events here: (

Few Indian companies also completed their milestones starting from India’s oldest business group that of Tatas celebrating its 150 years. Their own website says: “In 1868, aged 29 and wiser for the experience garnered by nine years of working with his father, Jamsetji started a trading company with a capital of Rs 21,000.” This is followed by Hindu newspaper marking 140 years followed by three businesses marking their centenaries: Britiannia, Saraswat Bank and Mysore Sandal Soap.  Hindu newspapers is also celebrating 25 years of its business paper – Hindu Business Line.

The 1991 reforms led to wide-scale reforms including those in financial sector with advent of National Stock Exchange and allowing Private Sector in Mutual Funds as the marquee of these reforms. Both competed their 25 years in 2018 with NSE hosting Prof Robert Merton in the R.H. Patil memorial lecture. The media discussed the events with the fund managers who were around during that momentous time. More importantly, the torchbearer of these reforms Securities Exchange Board of India also completed its 30 years. It started in 1988 as a non-statutory body and gained steam after 1991 reforms and Harshad Mehta Scam.

Talking about reforms, one has mention China competing its 40 years of liberalization and reforms. After the Mao-era, Chinese authorities began to gradually to open up their economy to external markets and becoming a force in world economy.

We now look at some of the names and ideas that shaped world and Indian economy. We start with who else but Karl Marx who continues to divide the world thinkers despite being born 200 years ago. A history of Indian political economy can never be complete without discussing the role of PC Mahalonobis as he completed 125 years in 2018. There are two seminal research papers which made a phenomenal contribution to economic research marking 50 years. The first is the highly celebrated work by Milton Friedman where he questioned the trade-off between inflation and unemployment as espoused by Philips Curve. The second not so celebrated is Douglass North’s paper where he estimated shipping productivity from 1600-1855. The other paper which deserves mention is Paul Krugman’s paper written in 1998, which analysed the Japanese crisis of 1990s and famously asking their central bank to “credibly promise to be irresponsible”.

It is good to end with Krugman’s paper, as the developed world faced near similar shock as Japanese economy leading to referring that very paper. We have just completed 10 years since Lehman crisis making it the shortest phase of history (along with bitcoin) mentioned in this article. The policymakers and academicians worldwide, have written and reflected on the lessons from the 2008 crisis. There is a wide belief that lessons have been learnt and we are unlikely to see repeat of the events. We will have to wait and see history enfold to see how much of this optimism is indeed true.

Till then, bidding adieu to a historic 2018 and welcoming 2019!

40th anniversary of China’s economic reform and the 70th anniversary of its central bank: Some perspectives

December 28, 2018

Yi Gang, Governor of the People’s Bank of China, gives a speech on the twin anniversaries:

This year marks the 40th anniversary of the reform and opening-up and the 70th anniversary of the founding of the People’s Bank of China (PBC). As components of China’s tremendous achievements in the progress of the reform and opening-up, historic changes in the financial sector have taken place in the past four decades, and a modern financial market system has been broadly established which, adapting to the socialist market economy with Chinese
characteristics, is vital and internationally competitive.

And over the past 70 years, under the leadership of the Communist Party of China (CPC), the PBC has made extensive exploration and innovation, overcome formidable obstacles, pioneered in the promotion of financial development, reform and opening-up at different times, kept creating new prospects for the financial sector, and made significant contributions to China’s economic and social development.

In China it is clear. Central Bank functions under the aegis of the Government and there is no quarrel over central bank independence. The markets do not even care whether the central bank is any independent or not.

Gang lists several changes which have gone in the 40 years in financial sector. Useful speech as we know little of the developments in China..

2008-18: A decade where mainstream academic world and mainstream policy world went own ways..

December 28, 2018

JW Mason gives a nice overview of macroeconomic research in the decade:

He says the macro research may not have changed in academic world but in policy world there are sure changes.

Has economics changed since the crisis? As usual, the answer is: It depends. If we look at the macroeconomic theory of PhD programs and top journals, the answer is clearly, no. Macroeconomic theory remains the same self-contained, abstract art form that it has been for the past twenty-five years. But despite its hegemony over the peak institutions of academic economics, this mainstream is not the only mainstream. The economics of the mainstream policy world (central bankers, Treasury staffers, Financial Times editorialists), only intermittently attentive to the journals in the best times, has gone its own way; the pieties of a decade ago have much less of a hold today. And within the elite academic world, there’s plenty of empirical work that responds to the developments of the past ten years, even if it doesn’t — yet — add up to any alternative vision.

For a socialist, it’s probably a mistake to see economists primarily as either carriers of valuable technical expertise or systematic expositors of capitalist ideology. They are participants in public debates just like anyone else. The profession as the whole is more often found trailing after political developments than advancing them.


Many critics were disappointed the crisis of a 2008 did not lead to an intellectual revolution on the scale of the 1930s. It’s true that it didn’t. But the image of stasis you’d get from looking at the top journals and textbooks isn’t the whole picture — the most interesting conversations are happening somewhere else. For a generation, leftists in economics have struggled to change the profession, some by launching attacks (often well aimed, but ignored) from the outside, others by trying to make radical ideas parsable in the orthodox language. One lesson of the past decade is that both groups got it backward.

Keynes famously wrote that “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” It’s a good line. But in recent years the relationship seems to have been more the other way round. If we want to change the economics profession, we need to start changing the world. Economics will follow.


This line-  the image of stasis you’d get from looking at the top journals and textbooks isn’t the whole picture, the most interesting conversations are happening somewhere else – is quite true. You get far more ideas reading newspapers and blogs (most of which ironically are written by top academicians) than reading journals and textbooks..

Bank Underground Blog’s Christmas Quiz

December 27, 2018

Nice quiz  on the blog.

I fared too poorly to tell my score 😦


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