Archive for the ‘Central Banks / Monetary Policy’ Category

Reading through Indian economic/monetary history using coins..

September 19, 2016

Prof. Pankaj Tandon who accidentally got into numismatics, now has quite an interesting story to tell.


The trouble with macroeconomics ( a scathing critique by Paul Romer)

September 16, 2016

Finally a central banker admitted the truth. On being asked how monetary policy decisions are taken with all the data and science, Bank of Israel chief replied: “This is art, not science”. Moreover, it is all about how much the central banker can credibly hoodwink the media/experts into accepting that the policy is right. As long as this can be done, nothing else actually matters.

Anyways this post is more about this scathing criticism be Paul Romer on state of macro. There has been a lot of it already but this one will be one of the top most criiticism as it comes from a person who has seen and done it all:


Bank of England trying to draw parallels between finance and cricket..

September 14, 2016

Wow! Bank of England’s One Bank Seminar series has invited former West Indian ace Michael Holding to give a talk.

Michael Holding, former West Indies cricketer and current Sky Sports commentator, will join us for the next One Bank Flagship seminar on 14 September.  

The Bank’s Chief Economist, Andy Haldane, will join Michael to draw parallels between the world of cricket and finance – discussing issues of leadership, diversity and team-building.

Michael, nicknamed Whispering Death due to his silent yet fast bowling prowess, starred on the West Indies team from 1975-1987. During this time he earned 249 wickets in 60 tests, and played a further 102 one day internationals. Michael was named Wisden Cricketer of the Year in 1977, and is also credited with bowling “the greatest over in Test history”, against English batsman Geoff Boycott in 1981. 

Since retiring from his sterling international career, Michael has released two books ‘Whispering Death’ and ‘No Holding Back’ and has moved on to become a popular TV commentator, working with Sky Sports in the UK since 1995.

The seminar starts in a little above 1 hr from the time of posting.

Will be interesting to see this for sure..

Where Do Monetary Rules Come From and How Do They Work?

September 14, 2016

David Glasner has an interesting post on thinking about mon policy rules.


How can the Bank of England serve society and maintain stability in times of change?

September 13, 2016

After years of hubris and nonchalance, Central banks of advanced economies are running for cover. They are increasingly trying to show how they remain relevant and important for the  society.

This release from Bank of England says it all:


Lessons from unconventional monetary policy implemented between 1797 and 1821…

September 12, 2016

Patrick O’Brien and Nuno Palma have some lessons from history of unconventional monetary policy. Actually just as when economists say this time is different, we should be worried. Similarly when they say “this policy is unprecedented”, we should question it as there will mostly be some historical precedent. This is especially true on monetary (and trade) matters, where similar issues have cropped up every now and then. The names may change and even some nature, but the broad idea is likely to have a precedence.

The authors argue the same for unconventional monetary policy:


How is it that Nepal understands central banking matters better than advanced world?

September 6, 2016

We have seen two top govt executives behind the financial crisis join the Financial Street after their assignments. Mervyn King, head of BoE joined Citibank and José Manuel Barros head of EU commission joined GS. It is amazing how these things continue despite much opposition.

I was just alerted to this development in Nepal where its central bank top officials are barred from joining banks for lifetime. And lower level executives can join only after a cooling period:

Retired staff of Nepal Rastra Bank (NRB) will be barred from joining banks and financial institutions (BFIs) for up to three years after leaving their jobs.

The parliamentary Finance Committee on Tuesday inserted the restriction in the bill to amend the Nepal Rastra Bank Act in a bid to avoid conflict of interest. The governor, deputy governor and executive directors of the central bank are already subject to such a provision, and the House panel has extended the restriction to junior level staff.

However, the Finance Committee has reduced the prohibitory period for deputy governors and executive directors to three years from the proposed seven and five years respectively in the original bill. The governor, however, has been banned for life from working in BFIs after leaving the central bank. Former staff will need to get NRB’s okay to join any BFI at the end of the prohibitory period.

The Finance Committee decided to insert the provision in the bill following a request by NRB Governor Chiranjeevi Nepal to the House committee on Tuesday even though lawmakers had submitted no proposals.

During the meeting, Governor Nepal said that even officer-level employees of the central bank had become CEOs of BFIs right after retirement. “So it is necessary to fix a certain prohibitory period for them too to avoid conflict of interest,” he told lawmakers.

The prohibitory provisions were inserted in the bill due to concerns that central bank officials could work in the interest of the BFIs which they planned to join after retirement.

So the revolving door was active in Nepal too until this law which has tried to provide some brakes.

I mean Nepal sees these conflicts of interest and take out a law against these practices. Why is advanced world sleeping where these conflicts are much much larger in scale and scope? I know they might hate to learn these lessons from Nepal but they have little choice on these matters…



Fed’s new Facebook page shows how badly public thinks of the the central bank…

September 6, 2016

Ryan McMaken of Mises points to this new Federal Reserve FB page. It was started on August 18 2016 amidst low fanfare.

There have been couple of posts trying to explain its objectives and functions to general public. What has followed those posts is some serious acerbic comments by one and all.

Read these couple of comments:


Monetary Policy Family reunion at Jackson Hole :-)

September 2, 2016

Prof Perry Mehrling just nails it with this post. He says how The Jackson Hole this year was just another of those reunion of monetary policy families. It is a very tightly held family which is really difficult to break into. They have been either managing or shaping monetary policy for almost all the countries in the world.

It was a reunion as only one paper actually was based on the theme of the conference. Rest were just usual rambles. It seems most had just assembled to say hi to each family member and get family updates :


There are serious limits to central banker’s machoism: Case from Bank of England history

September 1, 2016

Recently former Indian central bank chief spoke about how he was not the uber-confident alpha male liked by markets. He was obviously reflecting on the few such central bankers whose over the top statements continue to be given big likes by markets. The markets ironically love this central figure who with his loud statements and display of bravado like that of yesteryear (and even today) dictators.

The earlier dictators swung mood of the general public in their favor and today’s central bankers try and seing the mood of markets in their favor. Nothing else actually matters. What is actually just comical stuff is appreciated by one and all. But then as it is true with all dictators happens to central bankers as well. Seeing nothing much happening other than image management, people soon figure the folly of their beliefs and we have a crisis before things come back to normal.

This research by Prof Stefano Ugolini of University of Toulouse shows how Mario Draghi statement of “whatever it takes” was just that. He also draws lessons from Bank of England during Gold Standard phase before World War I. The Bank was expected to lead the world but faltered. This was minus all the bravado from BoE chief as we didn’t need central bankers then to show off. We had quite a few dictators doing the job:


How ECB monetary policy is leading to rise in demand for home safes in Germany..

August 31, 2016

Wow, this is some bit of development in Germany. Germans kept piling on savings in savings accounts till rates were zero. Now with negative rates, they say enough is enough. They are busy keeping cash in their homes and for this demand of homesafes are rising. I did not know Japan saw similar development just a while ago.


How US created Liberty Bond to finance World War I

August 31, 2016

Nice piece of economic history by Richard Sutch of Richmond Fed.


Whom do the Regional Fed boards serve?

August 30, 2016

It is interesting to see the rising debates over role of central banks in the society. The discussion is of course widely different from those going in India where asking such a question is akin to a crime.

Of all the discussions, it is those on Federal Reserve and its Regional arms that are by far the most. Federal Reserve established in 1913 amidst a lot of suspicions has come a full circle. It moved from a suspicious body to one of the most powerful bodies in the world and is now back on the suspicious block.

There are all kinds of issues being posed on Federal Reserve from policy impact to independence. Though, the one on its relevance in US economy is perhaps the most important. People have attacked Federal Reserve as an institution from all possible corners. Some say Fed only serves Wall street interests, others say it does not do enough for main street. Within Fed structure, the role of regional Feds is being questioned as their boards are elected by member banks.

This piece by Helen Fessenden and Gary Richardson gets to the Regional Fed debate from a wide historical lens:


Why gauging inflation is so hard: It is made up of several components..

August 26, 2016

Barry Ritholz tells us the obvious which alas is ignored. We treat inflation as one number which somehow could be controlled and managed by a central bank. However, inflation is made up of prices of several products and services. These prices in turn depend on the nature of industry of the product. If it is a monopoly, prices will remain sticky/unchanged and if more competitive, prices will change more often.

Inflation isn’t dead; it just might not be where you think it is.

To find significant price increases, you need only look in the right places. There are many goods and services with rising prices, as well as those without. Together, they tell a fascinating tale about the modern global economy. Understanding the forces driving prices higher — or not — is crucial to investors and policy makers alike.

Given that the Federal Reserve has been trying to generate inflation for much of the past decade, the significance of the distribution is both important and telling. Why some prices are rising at twice the median rate of general inflation is worth delving into. 

Look at the chart below: it show specific categories of goods and services versus the entire basket of goods and services that makes up the consumer price index.

Let’s look a little more deeply at each category.

There are multiple factors responsible for such diverse break-up. Text-books and medical care remain monopolies, food and beverages due to dollar depreciation, software/toys/wireless due to competition and so on.

In the end:

So what might we conclude from looking at the chart’s component parts? Maybe only that it’s a little easier to see why the Fed has been having a hard time getting inflation to rise. While some prices are indeed up, many powerful forces have driven other prices lower — and these are forces that the Fed can’t easily influence. Until there is a substantial and sustained increase in wages (or a huge drop in the dollar), inflation may very well remain below the Fed’s 2 percent target for a long time to come. 

Not a lesson just for just Fed but all other central banks as well..

Ramen noodles are replacing tobacco/cigarettes as preferred currency in prisons

August 26, 2016

Literature on various types of money points how tobacco/cigarettes are used as currency especially in war camps and prisons.

Cigarettes are now being replaced by Ramen noodles in prisons as the most precious commodity (HT: MR blog):


Lehman and Fed: Mystery deepens..

August 25, 2016

Prof. Laurence Ball’s paper has been making news. The US officials let Lehman go in really adverse  times. They have told us the i-bank could not be saved as it did not have any collateral. Though, few doubted this narrative.

In this shorter post, he explains that this narrative is wrong. Lehman could have been saved and it was just a political decision to let it go. They also underestimated the costs of the blowup:


Monetary policy in a low r-star world

August 19, 2016

This short paper by John Williams of San Francisco Fed is doing rounds.

Williams says much of the developed world is stuck in a low r star or the neutral rate:


15 August is an important day for monetary economy scholars…

August 18, 2016

It was on 15 Aug 1971 that President Nixon closed the gold-dollar window.


Adding “realism and a degree of modesty” to monetary policy framework?

August 16, 2016

Reserve Bank of Australia chief Glenn Stevens in a speech says:


How Central banks moved from fiscal dominance to financial dominance..

August 16, 2016

Daniela Gabor of University of the West of England has a nice paper on political economy of repo markets.

The summary of the paper is here. She explains how we move from one crisis to another in macro/monetary policy. Emergence of Repo was seen as an end to fiscal dominance. But it triggered a new problem of financial dominance: