Archive for the ‘Central Banks / Monetary Policy’ Category

Bank of Israel holds interest rate discussions at two levels…

June 13, 2017

This report from Bank of Israel caught my eye. Most central bank call such reports as Minutes of Monetary Policy Committee meeting. However, BoI euphemistically calls it as Report to the public on interest rate discussions.

It does not end there. In BoI, the interest rate discussions are held at two levels, broad and narrow. Spot the differences between the two:


Summing up macro models..

June 13, 2017

Noah Smith has a presentation on macro models. Broadly, he says there are 3 types of models: for academia, for central banks and for financial industry.

I’d like to close the chapter of my life that involves complaining about macroeconomics. I’ve been out of that world long enough that it’s becoming a distant memory. And much more qualified critics are on the job. Furthermore, macroeconomists I talk to – especially young macroeconomists – mostly seem to have heard and internalized all of the critiques. That doesn’t mean I want to stop following developments in the macro field, but that my days as a certified “macro-basher” have come to an end.

So when the Norwegian Finance Ministry, Norges Bank and Statistics Norway asked me to give a talk about “What Has Happened in Macroeconomics (and what still needs to be done)”, I viewed it as an opportunity to sum up. Here are the slides from that talk.

Hmm.. Quote good.  Hope he writes a paper on this for more details.


China’s evolving monetary policy rule: from inflation accommodating to anti inflation policy

June 12, 2017

Eric Girardin, Sandrine Lunven and Guonan Ma have this interesting paper.

This paper aims to enhance the understanding of China’s monetary policy rule since the mid-1990s, focusing on the role of inflation. It investigates the rule followed by the People’s Bank of China (PBoC) by considering both the structural economic transformation of China and its evolving monetary policy framework.

Our newly constructed monthly composite discrete monetary policy index (MPI), which combines price, quantity and administrative instruments, shows a change in style towards smoother but more contractionary policy moves from 2002 onwards. The estimation of a dynamic discrete-choice model à la Monokroussos (2011) implies that, from this point onwards, the conduct of monetary policy has been characterised by implicit inflation targeting.

While the PBoC’s behaviour up to 2001 was reminiscent of that in the inflation-accommodating G3 economies of the United States, euro area and Japan up to 1979, it has been characterized since 2002 by a policy rule similar to the post-1979 anti-inflation (forward-looking) policy of the G3. An accurate estimation of the monetary policy rule from 2002 needs to consider China as an open economy, as a result of its rapid liberalisation of trade and finance after its WTO accession. As such, the influence of US interest rates has become increasingly significant for Chinese monetary policy.


Indian residential property price rise since 2007 highest in world…

June 12, 2017

Whenever there are news reports about affordable housing in India, one cannot help but laugh at sheer ignorance of the report. Moreover, most such news are written in the metro cities and the reporters should know how all this is just hogwash.

So, am not really surprised reading this Mint piece which says home prices in India have risen the fastest since 2007. It quotes from this BIS quarterly report (pg 11 of the report and 17 of pdf):


State Bank of Pakistan continues to include IOUs from India during Partition on its balance sheet!

June 9, 2017

The superb JP Koning looks at Indian monetary history during partition in his recent post. I had blogged a similar piece earlier as well.

During Partition, there were differences between India and Pakistan over distribution of assets and liabilities of RBI. The RBI was to give share of assets equivalent to notes which circulated in Pakistan. However, there were more notes than RBI imagined leading to differences. All the details are there in RBI history (1935-51).

What is even more interesting is that these assets continue to be recorded by Pakistan central bank (State Bank of Pakistan)! Being a history buff, I should have checked this.

Koning notes:


The noise over rift between FinMin and RBI starts yet again…

June 8, 2017

Central Bank independence crowd again smells blood. RBI’s statement yesterday  was just the perfect recipe to ignite the fire.

The Government had asked RBI MPC to meet a team of Finance Minstry officials headed by Chief Economic Adviser. But in the MPC media meeting yesterday, RBI revealed all members refused to meet the Finance Ministry!

And we knew what will happen next. There are so many reports in media today over the rift between the two entities. Sample this:


Reflection on professionalism, Hippocratic oath and the banking industry

June 7, 2017

Mr Muhammad bin Ibrahim, chief of the Central Bank of Malaysia asks bankers to be more trustworthy and ethical in their approach:

When we reflect about professionalism, the medical profession often comes to mind for its dedication, devotion, care and interest for society. Over 2,000 years ago, the Hippocratic Oath was first introduced to the world. Today, most medical school students profess some form of the oath upon graduation.

While written in antiquity, its principles are held sacred by doctors to this day. Its words have evolved with history. But its message remains the same: treat the sick to the best of one’s ability, preserve patient privacy, teach the secrets of medicine to the next generation, and much more.

What is interesting is not the oath itself, but the principles it expounds and the deep philosophical values that have firmly grounded the medical profession over the years. With it has also come an unwavering sense of identity, ethics and purpose for medical practitioners.

The numbers are equally telling. Polls such as Gallup and Ipsos have consistently ranked doctors among the most competent and ethical professionals worldwide. In 2016, 65% of people surveyed believed that medical doctors had either a high or very high level of honesty and ethical standards. The corresponding number for bankers was a mere 24%. A sad reflection of the state of affairs in the banking industry.

We trust doctors with the most intimate details of our health problems, complications and issues. We adhere to their instructions and advice, often assuredly and willingly. Few professions enjoy such stature, respect and trust. This is the epitome of professionalism.

Professionalism matters. Like the medical field, professionalism ought to form the cornerstone of the banking sector. It can be fostered. It should be practiced. And above all, it must be earned. As intermediaries in the economy and guardians of public funds, banking sector cannot hope to perform its role effectively if the respect and trust of the people is not earned.

As we commemorate this graduation today, there’s no better time to ask ourselves what it means to be a professional banker. Drawing from the medical profession and the Hippocratic Oath, let us ponder on the traits to guide our pursuit of developing high calibre and trustworthy bankers, and professionalising the banking industry. Three traits come to mind; Competence, Character and Calling.

From a banker to bankster..what a turnaround for banking industry…most countries are worried about conduct of the profession..

RBI’s MPC members refused to meet the Government!

June 7, 2017

There were recently apprehensions over government asking MPC members to meet before monetary policy to discuss interest rate matters.

RBI Governor in today’s policy discussion with media (see the video around 9 min.30 sec to 10 min) said the meeting did not happen. The MPC members refused to meet the Finance Ministry officials. It was an ouch moment!

RBI MPC’s first dissent…

June 7, 2017

Today’s RBI MPC meeting resolution was on expected lines with one difference. Though, there was a dissent this time:

Five members were in favour of the monetary policy decision, while Dr. Ravindra H. Dholakia was not in favour. The minutes of the MPC’s meeting will be published by June 21, 2017.

Though, the decision is not disclosed. However, based on earlier Prof Dholakia work my guess is he would have argued for a rate cut.

In previous meeting there was almost a dissent as one of the members (Dr. Michael Patra) asked for a rate hike but chose not to dissent!:

sum up, I believe that a pre-emptive 25 basis points increase in the policy rate now will point us better at the target of 4 per cent to which the Committee has committed explicitly. It will also obviate the need for back-loaded policy action later when inflation is unacceptably high and entrenched. On balance, however, I vote for holding the policy rate unchanged in this bi-monthly meeting and await a few more readings of incoming data so that remaining transitory factors have passed and a clearer assessment of domestic and global macroeconomic conditions emerges.

The MPC minutes will be interesting to read..

Denmark to issue a commemorative coin to mark the golden anniversary of its Queen and Prince

June 7, 2017

The commemoration coins keep piling up across the world.

The latest to join the race is Denmark which has issued a coin to mark the 50th anniversary of its prince and queen:

To mark the golden wedding anniversary of Her Majesty Queen Margrethe II and His Royal Highness Prince Henrik on 10 June 2017, Danmarks Nationalbank will issue a commemorative coin.

The coin will be minted as a silver 500-krone coin, a 20-krone circulation coin and a 20-krone coin in a proof version with a very sharply embossed motif.

The commemorative coin features a portrait of the couple, with the Queen and the Prince in three quarter profile, facing each other. Along the rim is a ring with the inscription: H.M. Dronningen og H.K.H. Prinsen (HM the Queen and HRH the Prince). The titles are separated by a heart, the mark of the Royal Danish Mint.

The reverse motif is the joint monogram of the Queen and the Prince. Above it, the date and the years of the wedding and anniversary are shown. Below the monogram is the Mint’s heart, which is also the symbol of love.

Medallist Henrik Wiberg has sculpted the portrait and reproduced the joint monogram.

The coins are legal tender and can be exchanged at Danmarks Nationalbank at face value.  All versions of the commemorative coin will be on sale from 7 June 2017 from Danmarks Nationalbank, from the Royal Danish Mint’s webshop and from certain banks.

Though, as pointed earlier Denmark has outsourced minting business to Finland and is in the process to outsource printing notes as well, So will Finland print this commemorative coin for the Highnesses as well?

When an Australian economist’s piece on monetary transmission is discussed in Parliament..

June 7, 2017

It does not happen too often when Parliamentarians discuss an economist’s piece, even if the hearing is on economic matters.

So it is interesting when Prof. Abbas Valadkhani of Swinburne University of Technology writes this piece in Oct 2016 on how banks delay rate cuts following rate cut by central bank. He shows via research that these delayed rate cuts help these banks make money:


Bank of England economists reading children books to simplify writing…

June 6, 2017

Paul Romer was recently sidelined for asking WB economists to wrote clearly. So much so for economists continued hubris.

However, some organisations are taking this criticism seriously. For instance Bank of England econs are reading children author books: (HT: MR Blog):


Why Italian bonds remain riskier compared to Japanese despite latter having higher government debt?

June 6, 2017

The praise or blame as expected is on central bank doors.

Prof. Athanasios Orphanides who is also former head of Bank of Cyprus blames ECB for Italy’s woes:


Has the Swiss Phillips curve flattened over the years?

June 5, 2017

Interesting article by Stefan Gerlach, Chief Economist of EFG Bank.

In many economies, inflation may have remained stubbornly low during the recovery because their Phillips curves have become flatter. This column uses an analysis of Swiss data since 1916 that support this argument. The most recent structural break in the Swiss Phillips curve occurred in 1994, when it became much flatter. Previous structural breaks suggest that this has been a change from an above-average to a below-average slope, not a collapse from the long-term normal level.

Despite Friedman rejecting Philips Curve, it remains on of the most important macro idea. Moreover, Friedman wrote about times when we had high inflation and positive rates. It is all so confusing now.

Overall, these findings suggest that the change of the slope of the Phillips curve between the 1970s and 1990s, as emphasised by Blanchard et al. (2015), was an abrupt fall from an above-average to a below-average slope, not a collapse from some historically ‘normal’ slope to almost zero. If so, the current flat Phillips curve may be merely a temporary phenomenon that will soon increase in slope.

The analysis also raises questions for future work. First, how country-specific are the observed changes in the slope of the Swiss Phillips curve, and to what extent are they also present in data from other economies? It would be interesting to know if Phillips curves elsewhere were unusually steep in the 1970s.

Second, to what extent can we separate different hypotheses for changes in the slope of the Phillips curve? Consider the most recent period: the Phillips curve hay have indeed flattened, but we might have confused shifts in the level and the slope of the Phillips curve. This could happen if, for instance, we have underestimated the amount of slack in the economy.

Arizona’s government has adopted new pro-Gold reforms

June 2, 2017

This blog had pointed how some US States are planning to allow gold/silver as currencies.

Now Arizona has acted to removing taxes on Gold and Silver:

Last week in Arizona, Governor Ducey signed into law HB 2014, which removes state-level taxation of gold and silver coins, and moves the state further toward treating gold and silver as simply another form of legal tender. By removing taxation, the legislation facilitates the more widespread purchasing and selling of gold and silver both an a hedge against inflation and as a medium of exchange. 

In March, Ron Paul testified at the Arizona legislature in favor of the bill, and noted he considers the legislation as part of an effort to create more room for “competing currencies” against the dollar. 

The HB 2014 easily passed through floor votes of both the House and Senate, although it remained unclear whether or not the bill would be signed into law. Governor Doug Ducey had previously vetoed similar legislation, likely motivated by tax revenue concerns. 

interesting set of developments in US despite all the noise…

A Pretty Peso: Colombia showcases its rich culture on the newest member of its family of banknotes

June 1, 2017

On one hand, we are seeing governments pushing digital money and on the other we see Governments across the world issuing newer and fancier banknotes. It is partly to increase security and partly to keep the feeling of nationalism going. This blog has pointed to new banknotes/coins in New Zealand, Sweden, UK, NorwayFiji and  many more.

Nadya Saber points to Colombia’s new banknote series:

As Colombia progresses on a trajectory of healing and growth, the country has issued new banknotes that pay tribute to former presidents Carlos Lleras Restrepo and Alfonso López Michelsen, anthropologist Virginia Gutiérrez de Pineda, poet José Asunción Silva, painter Débora Arango, and national literary treasure García Márquez—influential Colombians who have shaped the country’s cultural, political, and scientific landscape. 

José Darío Uribe, former governor of the Central Bank of Colombia says, “the new family of banknotes responds to the needs of the economy, pays homage to outstanding personalities of the country, and exalts our biodiversity, turning it into the new image of our banknotes.”

It has a 50,000 Peso note with celebrated author Gabriel García Márquez on the bankote:

A 2016 nominee for the International Bank Note Society Banknote of the Year award, Colombia’s 50,000 peso note featuring García Márquez is a finalist among 18 revamped banknote contenders from around the globe. 

García Márquez’s legacy—bringing Latin America to life through the pages of his poignant prose and giving the world a glimpse of the Colombia he loved—shines through the violet undertones of the 50,000 peso note. And an excerpt of his Nobel Prize acceptance speech is also featured on the bill.  

It’s no surprise then that everyone is talking about the Gabo banknote—especially on social media. Run the search #Gabo and you are likely to find countless posts not only praising the author’s banknote, but also asking how to obtain one.  

Colombia’s new family of banknotes is cause for celebration—proving that the country is ready to cash in on its history to bank on the future.


The Norwegian economy, sea and banknotes

May 31, 2017

Norway has released new banknotes – 100 kroner and 200 kroner. I had earlier pointed to this superb video on its banknotes.

The new notes are inspired from sea as the Norwegian economy gets much from the seas:

The motifs on all of the new banknote series denominations show the importance of the sea for the prosperity and welfare of the people of Norway. The primary motif on the front side of the 100-krone banknote is a Viking ship, while on the 200-krone note, a cod is portrayed facing left. On the back sides, abstract representations of a cargo ship (100-krone note) and a fishing boat (200-krone note) can be seen on the horizon.

The banknotes were designed by Norges Bank’s banknote designers Arild Yttri and Morten Johansen. The designs on the front sides of the banknotes are based on the proposal from Metric Design and Terje Tønnessen. The proposals for the back of the notes were submitted by Snøhetta Design. The primary motifs were drawn by the artist Sverre Morken. The Atlantic puffin watermark motif is based on a photo taken by photographer Tom Schandy.

The new 100-krone and 200-krone banknotes were printed by Oberthur Fiduciare in France.

There is a speech by the central bank chief who links Norway economy to the sea:

This is a day I have been looking forward to for a long time – it’s not every day a new banknote series is put into circulation. The last time was in 1994. And being able to hold the launch here in the Lofoten islands is an added bonus. The sea and the Lofoten islands are inextricably linked – the sea is a defining feature of the landscape and a key source of food, employment and recreation.

Norway’s coastline is embraced by the sea from the northernmost point to the southernmost tip. The sea has shaped our history and our economy, and from today onwards, it will also feature on Norwegian banknotes. Norges Bank has been governed by our elected representatives since 1816 under a clear mandate: to safeguard the monetary system and the value of our money. Norges Bank’s banknotes and coins are the community’s money, and our trust in the value of our banknotes is closely linked to our trust in each other. With this in mind, it was important to design banknotes that would tell a story about us as a community of people. As the sea is a key dimension in that story, it was chosen as the theme of the new banknote series.

Fascinating stuff..

An early attack on independence of RBI’s monetary policy committee…(Does it matter?)

May 30, 2017

If there is one topic on economics where one can continue writing it is central bank independence. It is amazing how the term was barely discussed till mid 1980s, has risen so sharply in economic discussions.

Recently, RBI set up a Monetary Policy Committee which was expected to finally resolve the debate forever. Earlier, the onus was on central bank chief who could be pressurized by the government especially towards cutting rates. But the government can of course not pressurize the whole committee. Thus, RBI monetary policy is independent forever.

Right? Not really.

Mint editorial says attacks have begun on MPC independence:


Why does money depend on trust?

May 29, 2017

Nice primer from Bank of England. Trust is all there is to money..

Norges Bank develops a video on new banknotes..

May 29, 2017

Interesting video from Norway Central Bank celebrating its new 200 kroner banknote which has its favorite fish- cod – on the note.


There is some explanation here: