Archive for the ‘Discussion’ Category

After pioneering inflation targeting, Reserve Bank of NZ leading the way in bank regulation as well..

December 18, 2018

Prof JR Varma blogs about Reserve Bank of NZ again leading the way in bank regulation.

RBNZ has decided to double the capital levels held by NZ banks. The approach to doubling the capital base is different:



History of British Dak Bungalows (and RIP Tulsi Ramsey)

December 17, 2018

Quite a coincidence.

As I was reading this history of Dak Bungalows by Aditi Shah of Live History India, came across this news of passing away of movie director Tulsi Ramsey. Both Tulsi and Shyam (Ramsey) made horror movies with Dak Bungalows as one of the cornerstones (along with Havelis, Darwazas etc) in their movies. There is even a movie by the name Dak Bangla (Bungalow) by the Ramseys. And not just Ramseys. other directors used it too. The mention of the two words was meant to tell the audience something is going to happen in the movie..

GOing back to Aditi’s piece, she writes on how these Dak Banglas became such a critical part of British infrastructure and our psyche. They were built to help deliver post (or dak in urdu) in stages. Gradually, they came to be occupied by British officers to travel and stay in remote parts of India..

Superb stuff from LHI ahain…


Using RCTs to Estimate Long-Run Impacts in Development Economics

December 17, 2018

Review paper on RCTs by Adrien Bouguen, Yue Huang, Michael Kremer, and Edward Miguel:

We assess evidence from randomized control trials (RCTs) on long-run economic productivity and living standards in poor countries. We first document that several studies estimate large positive long-run impacts, but that relatively few existing RCTs have been evaluated over the long-run. We next present evidence from a systematic survey of existing RCTs, with a focus on cash transfer and child health programs, and show that a meaningful subset can realistically be evaluated for long-run effects.

We discuss ways to bridge the gap between the burgeoning number of development RCTs and the limited number that have been followed up to date, including through new panel (longitudinal) data, improved participant tracking methods, alternative research designs, and access to administrative, remote sensing, and cell phone data.

We conclude that the rise of development economics RCTs since roughly 2000 provides a novel opportunity to generate high-quality evidence on the long-run drivers of living standards.


RBI Governors And The IAS: A Long History

December 17, 2018

My debut piece with Bloomberg Quint. I look at this long history of IAS officers at helm of RBI. Of the 25 Governors in RBI’s history, 12 have been IAS officers including the recent appointee.

Some more trivia not there in the article:

  • IAS have occupied 60% of total days of RBI Governorship since 1935.
  • The average tenure of IAS officer is 4.5 years almost double that of other professions which stands at 2.6 years.
  • Within other professions, number of economists who have been Governors is 7. Their average tenure is 3.3 years. If we exclude Mr BN Adarkar who was the first economist at the helm but had a tenure of just 42 days, the average tenure improves to 3.9 years.
  • Post-1990 we have had 8 Governors, split equally between 4 economists and 4 IAS. The average tenure of IAS and Economist is also split at 4 years.



History of Bangladesh Currency (Taka) is really interesting and worth researching…

December 13, 2018

Came across this article on an exhibition on Bangladesh history organised by the Bangladesh Deputy High Commission, Karachi.

The section comprising banknotes was also well-appreciated; Bangladesh Bank over the years has been changing the design of the banknotes in different denominations. Taka one first issued in 1973 had a typical Bengali woman pounding rice on one side of the note. Commemorative notes of 100 years of Bangladesh National Museum 1913-2013 were also displayed.

This got me thinking. After all, Bangladesh as East Pakistan shared its currency with West Pakistan. There were two branches of State Bank of Pakistan as mentioned in history of Bangladesh central bank:


The role of transaction costs in Douglass North’s understanding of economic history

December 13, 2018

Nice paper by Rosolino Candela of George Mason University:

The purpose of this chapter is an attempt to reconstruct the evolution of North’s approach to understanding economic history. Underlying this evolution has been an increasing recognition of the role that transaction costs play in explaining the economic performance of different societies through time. I argue that, as a by-product of North’s emphasis on transaction costs throughout his scholarship, he transitioned from a neoclassical to an Austrian understanding of the process of economic change.

The implications of North’s growing emphasis on transactions costs throughout his career was a growing importance of other complementary features of economic theory, shared by Austrians, to explain processes of institutional change throughout economic history. These features of Austrian economic theory include: methodological subjectivism; competition and discovery under uncertainty; a dynamic conception of learning through time; and the role of ideology in structuring the patterns of meaning and purpose attached to human action.


Slovak central bank Governor resigns early and its finance minister expresses interest in the job…

December 12, 2018

As Urjit Patel resigned on 10 Dec 2018, another central banker gave up the job a fortnight ago on 27 Nov 2018.

This was Jozef Makúch, the Governor of Slovakia Central Bank. He took the decision in the Board meeting (ironically):

The Bank Board of Národná banka Slovenska today (27 November) held its 22nd meeting of 2018, chaired by Jozef Makúch, the NBS Governor.

In accordance with Article 7(8)(b) of Act No 566/1992 Coll. on Národná banka Slovenska (the NBS Act), as amended, Mr Makúch submitted to the Bank Board his notification of resignation from the position of Governor of Národná banka Slovenska with effect from the end of 1 March 2019 or, if later than that date, the end of the day before the effective date of the appointment of the next Governor of Národná banka Slovenska, until which date he will continue to hold the position and perform the duties of NBS Governor pursuant to the NBS Act.

Like Urjit, Makuch was slated to retire later in March 2021.

Apparently as Makuch chose to retire, finance minister Kazimir expressed interest in running the central bank:

 Finance Minister Peter Kazimir said on Tuesday he would run for the post of Central Bank governor to replace Jozef Makuch, who announced his early departure on Tuesday.

Kazimir, 50, finance minister in centre-left governments since 2012, has often taken a tough line similar to that of Germany on euro zone policies toward countries that fail to meet their fiscal commitments.  He has been a loyal ally of the Smer party chief Robert Fico, but has also won praise for narrowing the public finance deficit, aimed to fall to zero next year, despite the government’s welfare spending.

Critics, including Slovakia’s main fiscal watchdog, say he could have used strong economic growth, underpinned by a booming car sector, to push for a faster consolidation of public finances.

Kazimir first joined politics when he became deputy finance minister in 2006-2010, overseeing the country’s accession to the euro zone in January 2009. Viewed as a pragmatic technocrat in Slovakia, he first sought to leave party politics last year when he unsuccessfully ran for chairman of the EU’s single currency club, the Eurogroup.

The Slovak central bank governorship job came for grabs earlier on Tuesday when Makuch said he would quit as of March next year, ahead of the end of his mandate in January 2021. The decision was not a shock as Makuch had said in September he was considering an early departure.

Not very different from the saga in India. Here too, we see a former bureaucrat from Finance Ministry taking up the job. Not the finance minister but as close as it can get…

Figuring the roots of French “Yellow Vest” movement…

December 10, 2018

Olivier Blanchard on the yellow vest movement.

He says one has to go back in history to figure the roots of this movement:

…with the end of communism, it became clear that there was no alternative, only a muddle between market intervention and free markets. So long as growth was strong, and all boats were indeed lifted, the problem was manageable. Then growth slowed down, and inequality and insecurity became more salient, with no simple solution in sight.

The center-right and center-left parties tried their best to manage, but their efforts were not good enough. Sarkozy tried reforms but failed. Hollande, his successor, had a more realistic agenda but did not achieve much. Unemployment remained high and taxes increased. People increasingly felt that the traditional parties did not improve their lot, nor did they represent them.

Then came Macron, who correctly pointed out that the left/right distinction did not make much sense anymore, and he won by occupying the large middle. In doing so, he tore the traditional center left and right parties to pieces, leaving only the extreme right and the extreme left as alternatives.

In the process, he may have made the political system worse. As the economy has not improved much yet, people, unhappy with the lack of results, do not have the traditional parties to turn to. Some have joined the extreme left or the extreme right. More have become skeptical of any representation, be it parties or unions, and have taken to the streets. Thus the gilets jaunes was born, a spontaneous and unorganized response, a form of direct democracy.

But unorganized direct democracy does not work. In a country of 65 million people, ancient Athens’ agora-style democracy cannot work. We have seen this in the last three weeks. There is no coherent voice or message emerging from the movement: The state cannot provide more public services and simultaneously lower taxes. In the streets, the movement cannot avoid being hijacked, to its dismay, by anarchists or vandals. It is going nowhere.

The challenge to the government and the political class is immense. If I am right, the sources of the problem are old and deep. The government must convince people that it is hearing them, while making clear that it cannot deliver the impossible. And the opposition must avoid playing with fire: Unorganized anger can lead to chaos.

Interesting bit..

Does better mathematics lead to making more money in financial markets? (remembering Fischer Black as well)..

December 7, 2018

Prof JR Varma of IIMA in this new post reflects on whether better math skills lead to making more money in the markets. The experience is mixed.

The purpose of this blog post is to ask a different question: how common is it for traders make money simply by better knowledge of the mathematics than other participants. My sense is that this is relatively rare; traders usually make money by having a better understanding of the facts.


Using unpublished mathematical results to make money often has the effect of destroying the underlying market. Nasdaq (which owned IDCH) delisted the swap futures contract within months of DRW unwinding its profitable trade. Similarly, Fischer Black effectively destroyed the Value Line index contract through his activities. Markets work best when the underlying mathematical knowledge is widely shared. It is very unlikely that the option markets would have grown to their current size and complexity if the option pricing formulas had remained the secret preserve of Ed Thorp. Mathematics is at its best when it is the market that wins and not individual traders.

Prof Varma also looks at whether Black’s math skills helped him win.


Luxembourg set to make all public transport free (and Indian cities barely encourage public transport)…

December 7, 2018

Interesting decision by Luxembourg polity.

From 2019 onwards, the public transport in the country will be completely free. The new government believes this will make people take more of public transport.


‘Cheating’ gorillas at U.K. zoo show puzzle-solving skills

December 5, 2018

Interesting piece:

Gorillas at a zoo in England have demonstrated a distinctly human trait while attempting to solve a new puzzle game — cheating.

The gorillas were presented with a wall-mounted device where the aim is to guide a peanut through a series of obstacles by poking a stick through various holes to move it along. Eventually the peanut reaches the bottom of the device and drops out.

Some gorillas, however, figured out an easier way to retrieve the nut.

“We’ve seen a lot of cheating behaviour where they’ve been putting their lips up against the device and sucking the nut out which was not how we intended the device to be used. But it just shows you that they’re very flexible, they’re capable of creating new solving strategies to access the food,” Dr. Fay Clark from Bristol Zoo Gardens said. “They have some fascinating problem-solving abilities that have probably not been witnessed before,” she added.

25th anniversary of Armenia’s currency (Dram)

December 5, 2018

Anniversaries related to money and banking keep coming in 2018. I had blogged about China celebrating 70 years of its currency and central bank.

Just came across Armenia also celebrating 25 years of its currency- Dram. The central bank has issued commemorative coin on the occasion.

The national currency of the Republic of Armenia, Dram, is one of the symbols of the independent statehood.

 Dram was introduced on November 22, 1993. Since that time the Central Bank of Armenia has been issued the banknotes and later on the circulation and commemorative coins, as well investment coins which are of great interest among collectors.  Starting from 1994 the Central Bank of Armenia has been issuing more than 400 gold and silver collector coins dedicated to commemorate birth anniversaries of prominent people of Armenia, as well as historical episodes and landmark events taking place nowadays

The new series of Armenian banknotes produced with the use of the best achievements of the modern security printing technologies has been dedicated to the 25th anniversary of introduction of the national currency.  Regular and consentient work to improve the quality of banknotes and coins of Armenia has been repeatedly praised at prestigious international contests.


70 year anniversary of People Bank of China and Reniminbi (and 40 years of China’e economic reforms)

December 4, 2018

People Bank of China was established in 1948 and along with it came Renminbi or People’s currency. In 1978, China started its famous reforms.

The central bank had an exhibition to celebrate these events.

On November 30, 2018, the exhibition entitled “China Name Card: Exhibition Commemorating the 70th Anniversary of RMB Issuance” was launched at the National Museum of China. Fan Yifei, member of the CPC PBC Committee and Deputy Governor, announced the opening of the exhibition. Wang Chunfa, Director of the National Museum of China, attended the opening ceremony.

Issuing currency, one of the PBC’s major responsibilities, is a fundamental, basic financial service provided to the public by the central bank. On December 1, 1948, the PBC was founded and issued the first series of the RMB. Over the past 70 years, under the correct leadership of the CPC, the PBC has issued successively  five RMB series. This exhibition is the first time the accomplishments related to the printing and issuance of all of the five RMB series are displayed on the same occasion.

A comprehensive introduction is given to the economic, social and cultural elements underneath the RMB of different historical periods, which is also a vivid demonstration of the RMB in terms of  development and inheritance, exquisite technique and unique charm.

Moreover, holding this exhibition at a time China celebrates the 40th anniversary of reform and opening-up can help people better understand the RMB’s history and currency culture, feel more keenly the glories in the development of New China’s financial cause, and further solidify their confidence and resolution to create a beautiful future by following the guide of the Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.

The exhibition “China Name Card: Exhibition Commemorating the 70th Anniversary of RMB Issuance” runs until December 16 in Beijing.

The central bank also released new banknotes and coins to commemorate the event.

Where motor parts are recycled into furniture

December 3, 2018

Nice work done by Jodhpur based firm Priti International.

Does an old military truck or a dismantled part of an old car or a broken bicycle have any place in a restaurant or a lounge bar where one would go to enjoy food or wine? Shouldn’t these things belong to the junkyard and stay there?

No, if you ask 44-year-old Ritesh Lohia. You give him junk and chances are high that he would turn it into a piece of furniture that attracts attention due to its unorthodox design. That his creations are already exported to nearly 40 countries only corroborates that there is indeed a demand for his furniture that originates from junk.

Mr. Lohia is one of the promoters of Priti International, which he started along with his wife Priti Lohia, after whom the company is named. Since starting the recycling business around 2010, the husband-wife duo has transformed parts of old trucks, cars, bicycles and various machines into dining and coffee tables, bar stools and chairs, lamp shades and cabinets among other things.

“We started the company in 2005 for making furniture and handicraft items but hit upon the idea of recycling only around 2010-11. Since then, the business has taken a strong positive turn. There is a lot of demand for the things we make,” he said.


The couple struck gold in their own junkyard while figuring out what can be done with the waste that their factories generated. What started as an in-house recycling project quickly transformed into full-scale recycling that now contributes to almost 70% of their production.

“We had an advantage in terms of location. Jodhpur has a big defence installation and a military auction house. We started purchasing old trucks and machines that were being auctioned there,” said Mr. Lohia.


Why historians worry more about Trump than economists…

November 30, 2018

Whether it is interviews done by Tyler Cowen or his articles, they are usually worth reading.

His recent piece doing rounds on social media:

The dangers of the current political moment in the West — with its polarization, harsh rhetoric and growing hostility toward cosmopolitanism — are evident to historians and economists alike. But which group sees the situation as more grave? I suspect it is historians, and it is worth considering why.

To be sure, some of the disgruntlement of historians stems from their political orientation. Historians are relatively left-wing, so it is no surprise that they are hostile to an “alt-right” shift in the political discourse. During the 2016 campaign, the group Historians Against Trump received widespread publicity.

More fundamentally, however, historians stress the importance of contingency, that things really could have gone another way. The decisions of a solitary assassin or the outcome of a single battle can shift the course of history. Particular leadership decisions might have avoided or limited World War I. Or what if the Germans had not, in 1917, put Lenin on a train back into Russia? The Bolshevik Revolution might have been avoided and probably the entire course of history would have been different. A shrewder President Paul von Hindenburg might have prevented the rise of Adolf Hitler.

If you think about these questions enough, you can end up very nervous indeed. Historians have seen too many modest mistakes spiral out of control and turn into disasters.

Economists, in contrast, work more with general models than with concrete historical situations, and those models emphasize underlying structural forces. Economies have fairly set populations, birth rates, natural resources, capital stocks, savings rates, trading partners, and so on. So to an economist, the final outcomes are closer to necessary than contingent.

Economists also study “catch-up growth,” which holds that systems tend to be self-repairing. So if some resources are destroyed, GDP will fall but the system will produce new replacement resources more rapidly, just as a lobster might regrow a lopped-off arm. Catch-up growth tends to make economists less nervous about natural disasters or wartime losses, although of course we think it is better to avoid the resource destruction in the first place. Many of Japan’s major cities were bombed to oblivion in World War II, but in time they regained their former prominence.

Some economic models do emphasize contingency — for instance, how a small force could induce an economy to make a major shift from one equilibrium to another. To give an example, some amount of defense contracting in Silicon Valley later caused the area to blossom into a major technology center. But perhaps the same could have happened in some other regions of the U.S. And these economic models remain the exception rather than the rule, often criticized for the fact that, under some circumstances, they can predict almost anything.



How the Ancient Egyptian economy laid the groundwork for building the pyramids

November 29, 2018

Andreas Winkler, Departmental Lecturer in Egyptology and Coptic, University of Oxford writes this really cool piece.

The way these huge pyramids were funded seems to be quite similar to the way British used zamindari system of land settlements to collect taxes in India:


The Development Economist as Historian of Economics: The Case of William J. Barber

November 29, 2018

Interesting paper by Mauro Boianovsky of Universidade de Brasilia.

The paper shows how William Barber’s background as a development economist influenced his research agenda in the history of economic thought, in terms of the questions he asked and the way he approached them. The links between the history of economic theory and of policy-making are highlighted, as well as Barber’s investigation of the engagement of British economists with India’s economic matters throughout the time span of the English East India Company.

The last bit on British economists on Indian economic matters:

Barber’s engagement with Myrdal’s project on India made him mindful of the role played by British economists – from Thomas Mun to James Steuart, Adam
Smith, Lord Lauderdale, Thomas R. Malthus, James Mill, J.R. McCulloch, Richard Jones and J.S. Mill – in maters related to the government of the sub-continent by the British East India Company between 1660 and 1858, as well as the influence of those issues on their respective theoretical frameworks. That is already noticeable in Barber’s (1967, p. 96) remark about James Mill’s “zeal for translating Ricardian and utilitarian doctrine into a massive program of reform in India” and its influence on the development of Mill’s thought (unlike his son John Stuart Mill), fully developed in his 1969 HOPE article and in the 1975 book.

Barber’s main contribution, qua development economist, to the history of economics was his 1975 investigation of the interplay between British economic analysis and colonial policy in India. Whereas Lewis did not address the classical views about the economic development of “backward” areas (such as India or Ireland), that captured Barber’s attention. With its focus on the interaction of economic theory and policymaking, the book on India set the tone for Barber’s trajectory as a historian of economics for the next decades, when the history of American economic thought came to the fore in his agenda (Barber 1985, 1996). Barber (2008, chapters 8-10) would come back to the history of development economics as Myrdal’s biographer, his last major work in history of thought.

It is amazing how little western world economists have paid any attention to colonial era while discussing world economy and development. This is not something new but has been going on for a long time as likes of Barber discovered….

Thinking about regulating shadow banks and renaming shadow banks as non-banks…

November 28, 2018

Luigi Federico Signorini in this speech talks about the need for regulation of non-banks.

He also points how Financial Stability Board has changed the nomenclature of shadow banks:

With the completion of Basel 3, the post-crisis overhaul of banking regulation is essentially over; with a limited number of exceptions, the only issues remaining for the next few years will be the implementation of reforms and the evaluation of their effects, intended or otherwise, over time. Banks, however, do not comprise the entire financial sector.

Arguably, non-bank financial intermediation has taken on an increasing role in the global financial system and poses new challenges to regulators. The attention of international co-ordinating bodies such as the FSB is therefore now mainly, and rightly, directed towards what used to be known by the vaguely derogatory name of ‘shadow banking’ but is now more neutrally termed ‘non-bank financial intermediation’. The aim of this speech will be to explore the emerging risks from non-banks, to describe the (not insignificant, but still inchoate) regulatory response so far, and to speculate about a possible agenda for
the medium-term future.

Global non-bank finance concerns everybody, even countries where banks continue to play a dominant role in the internal financial system, like Tunisia – or Italy, for that  matter. In a globally interconnected financial system, no country stands alone; none can remain isolated from market shocks and turbulence whose ultimate source may be in faraway parts of the globe. This is a key point for emerging market and developing economies.

Witness the recent experience of the ‘taper tantrum’, when a number of emerging economies faced external financial conditions that had tightened abruptly and higher generalised risk premia in reaction to a policy decision taken by the US authorities. On that occasion the countries affected found that the negative repercussions on their economy stemming from the generalised repricing of assets could not be mitigated through policy actions (either by relying on floating exchange rates or through capital  flow management measures). It has also become apparent that a low degree of financial deepening may actually increase the sensitivity of emerging asset markets to external shocks.

The issue with non-bank finance, it will be argued, is not the stability of individual intermediaries—micro-prudential risk. As the risk connected to managed assets is borne almost entirely by the ultimate investor, rather than by the manager itself, it is not, or not mainly, the possible default of the manager that should concern regulators.

On the other hand, the actions of asset managers may affect the financial system and the  general economy through their systemic consequences on market developments. The key questions are then whether, to what extent and under what conditions non-bank intermediation can amplify market movements and determine instability. It is, therefore, essentially a macro-prudential question. Understanding and measuring such risks will require data, research and careful reflection; tackling them is likely to require new or reinforced supervisory tools and, quite possibly, a broader mandate for supervisory authorities.


We are again seeing some concerns from non-banking financial sector. Here is another recent speech from Luis de Guindos, Vice-President of the ECB.

Israeli settlers sue Airbnb for delisting West Bank homes

November 27, 2018

Interesting case of how technology companies which think “one globe one market” are getting involved into regional matters.


How the discovery of a Jewish banker’s looted estate reunited a scattered family

November 27, 2018

Fascinating piece:

The family of the banker Marcus Heinemann was scattered all over the world. Then a provenance researcher discovered a file from the Nazi era, allowing the family to reunite in Germany for the first time in 70 years.

Amazing application of historical records…

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