Archive for the ‘Discussion’ Category

What Machiavelli can teach us about Boris Johnson and Jeremy Hunt (and politicians in general)

July 24, 2019

Fascinating piece by Christopher Fear:

Clown’; ‘buffoon’; ‘jester’; ’racist liar’ – these are just some of the terms used to refer to Boris Johnson, who, today, won the conservative party leadership contest, to become the Prime Minister of the United Kingdom. The media is having a field day over his candidature, portraying him as a clumsy but charismatic politician.

Boris’s opponent, Jeremy Hunt, on the other hand, was portrayed as a ‘serious,’ ‘managerial’ politician who pays attention to detail. In short, though both men embody the values of the Conservative party, they were projected as men with very different political styles.

But what can this campaign tell us about the realpolitik?

To our rescue comes an Italian political theorist, the author of one of the most famous works in history – Nicollo Machiavelli– who famously said: 

“The lion cannot protect himself from traps, and the fox cannot defend himself from wolves. One must, therefore, be a fox to recognise traps, and a lion to frighten wolves.”

As Britain’s Conservative party leadership voted to elect Boris Johnson to be their leader, we dished out an article that explains the phenomenon of image building in the political arena.

Read the whole thing and figure out how can one classify politicians as lions and foxes. How times keep changing making people prefer one over the other…


100th birth anniversary of Hemant Kumar

July 24, 2019

Ranjan Das Gupta pays a tribute to Hemant Kumar the man with the golden voice.

Those were the days when the singer Pankaj Mullick ruled hearts. A young man, with a splendid voice of his own, was such a fan of his that he tried emulating the senior musician’s somewhat nasal way of singing. Mullick, who knew him well, encouraged the young singer to develop his own style — and the world was introduced to Hemanta Mukherjee’s golden voice.

The year 2019 ushers in the 100th birth anniversary of Mukherjee, known as Hemant Kumar in the Hindi music world. The bespectacled musician — who was most often seen in a dhoti with a long white shirt — was born in June 1919, though some believe he was born a year later. More than 30 years after his death, his voice and music are still alive. Yet, few know that it was Mullick who had urged Mukherjee to rely on the strength of his voice.

What songs, what music, what an era!

The Fall of the Economists’ Empire (and their imperialism)

July 23, 2019

Another scathing piece on state of economics and its carrier which is economist. This one is by Robert Skidelsky:


Case for a Fiscal policy institution on the lines of a central bank/Federal Reserve

July 22, 2019

Benjamin Cohen argues that fiscal policy should be given to technocrats just like monetary policy.

Central bankers are often heard saying monetary policy is not the only game in town and time for fiscal policy to act and so on. But the problem with fiscal policy is it is politicised. But what is fiscal policy is also in the hands of independent agencies such as central banks? He calls it Fiscal Fed:

But what if fiscal policy was as depoliticized as monetary policy? An autonomous public agency with a defined range of fiscal-policymaking powers would be free to respond proactively to fluctuations in the economy. Like an independent central bank, a “fiscal Fed” could be staffed with politically disinterested professionals operating within limits established by statute. Ultimately, it would still be fully accountable to elected officials, but it would be able to make crucial budget decisions much faster than what is possible today.

To be sure, there would be little room for a new delegated authority to appropriate additional funds. After all, most of the expenditure side of the budget is nondiscretionary or relatively “sticky,” and thus difficult to start or stop on short notice. On the revenue side, however, a fiscal Fed could accomplish quite a lot through the levers of taxes and transfers. Its overarching objective would be to vary tax-withholding rates and transfer payments at the margin as needed, much as what central banks do with interest rates.

In creating such an agency, the political authorities would set basic goals and parameters, and elected officials would exercise active oversight on a continuing basis, to ensure responsible behavior. But within its statutory limits, the agency would be authorized to implement timely adjustments to the government’s revenues in response to changing economic conditions.

The scope of potential adjustments could be agreed in advance as part of the annual budget process, leaving the fiscal Fed with sole authority to determine the magnitude and timing of specific changes. Alternatively, the agency could be granted greater latitude to make such decisions on its own, provided the legislature does not issue a veto within a specified time period. At any rate, there are many ways to reconcile democratic accountability with depoliticized policymaking.

Needless to say, the same kind of objections that apply to central-bank independence would be made against a fiscal Fed. But there is nothing unusual about representative governments delegating key areas of policymaking to professionals. There are always tradeoffs between democratic prerogative and technocratic necessity, and different countries draw different lines between the two domains.

In the US, no one questions the legitimacy of independent agencies like the Securities and Exchange Commission or the Food and Drug Administration. There is no reason why an autonomous fiscal agency could not operate in a similar fashion. As long as its mandate is carefully circumscribed and its operations closely monitored, a fiscal Fed is an idea worth considering.

Riksbank to rename the repo rate to policy rate. Will other central banks follow?

July 22, 2019

The world’s oldest central bank is revamping its monetary policy framework. One of the changes is renaming repo rate as policy rate.

The changes are proposed in a two step manner.

In a first step starting in October
• Ceasing to conduct daily market operations in the form of fine-tuning transactions
• Setting the deposit rate on the standing deposit facility at 0.10 percentage points below the policy rate
• Continuing to offer Riksbank Certificates with a one-week maturity at the policy rate, but limiting the volume of certificates to ensure the overnight rate is close to the policy rate.

In a second step within a maximum of two years
• Setting the lending rate on the standing lending facility at 0.10 percentage points above the policy rate
• Tightening the collateral requirements for the standing lending facility
• Maintaining the current collateral requirements for intraday credit
• Replacing the Riksbank’s “repo rate”, which is currently the interest rate at which Riksbank Certificates with a one-week maturity are issued and which the Executive Board of the Riksbank adopts, with the more appropriate term “The Riksbank’s policy rate”.

I think this is something all central banks should do. Repo rate is too wonky a term for people to understand. Policy interest rate is a much better term and communicates to people what central banks are trying to do…


Revisiting the Coyne Affair: A singular event that changed the course of Canadian monetary history

July 18, 2019

Given how central bankers are being put under all kinds of pressure and even threatened, the affair of James Coyne, Governor of Bank of Canada (1955-61) is worth reading. He could not be fired so the Government actually declared the Governor’s position as vacant and advertised others to apply.

Pierre Siklos in this paper reviews the events and circumstances which forced Coyne to resign:

The Coyne Affair is the greatest institutional crisis faced by the Bank of Canada in its history. The crisis took place in 1959-1961 and led to the resignation of the Governor, once he was cleared of any wrongdoing. The crisis eventually resulted in a major reform of the Bank of
Canada Act. Archival and empirical evidence is used to assess the performance of monetary policy throughout the 1950s. In doing so, a real-time dataset is constructed for both Canada and the US that permit estimation of reaction functions. I find that the case against James Coyne is ‘not proven’.

It was Coyne saga which paved way for better appointment rules for Canada’s central bankers.

Here is another interesting account written in 1963:

At 5.45 p.m.. a Bank of Canada official flashes the word to the parliamentary press gallery that the governor will be leaving his office at 6.15. Reporters and photographers rush across Wellington Street.

At 6.21. six minutes behind schedule, a bulging black briefcase in his left arm. and guiding his misty-eyed wife with his other hand, Coyne steps out of the bank’s elevator. He shakes hands with the elevator operator. Seeing the wall of newsmen, he barks out a brusque “No comment.” then catching one of the reporters questions. “Do you have any 1 st words?” he replies: “No. Not for another forty years.” Then he walks out of public life.


Sebi chief questions Budget plan for transfer of surplus funds to govt

July 18, 2019

The markets are buzzing with the story of Jalan Committee asking RBI to transfer its surpluses in 4-5 tranches. This is on expected lines but we still have to wait for the final report to figure the details.

Meanwhile, we should also be focusing on how Government has even asked SEBI to transfer its reserves . The employees of the regulator have protested against the decision.

Now it seems SEBI chief has written to the government questioning the move:


Representing LGBT rights on banknotes

July 17, 2019

I had blogged that Bank of England has chosen Alan Turing as the person to be represened on their banknote.

Sarah John, chief cashier of Bank of England whose signs go on the banknotes (yeah Governor does not sign the banknotes in UK) tells us the proces behind Turing’s selection.

I found this bit really inspiring:

It is Turing’s incredible scientific achievements that are reflected in the design, and the reason he was chosen to appear on the £50 note. But I am also very proud that Turing will be the first gay man to be depicted on a Bank of England note. This fact is all the more poignant given the horrific treatment Turing received as a result of his sexual orientation. In 1952, Turing was convicted of Gross Indecency for his relationship with a man. To avoid a prison sentence, he accepted probation which was conditional on receiving oestrogen hormone, otherwise known as ‘chemical castration’. After his prosecution, he was no longer able to consult with GCHQ as homosexuals were ineligible for security clearance.

In 2009, Gordon Brown made an official posthumous apology for Turing’s treatment, and Turing received a royal pardon for the conviction in December 2013. In 2017, the ‘Alan Turing Law’, was passed that posthumously pardoned men cautioned or convicted under historical legislation that outlawed homosexual acts.

I hope that Turing’s depiction on the note will serve as a reminder to all of us of that prejudice has no place in the UK today whatever guise it comes in. Everyone’s achievements deserve to be celebrated, no matter their personal characteristics.

Bank of England officials have been speaking about building and promoting diversity. They seem to mean it in every  possible way.

50 Years Of Bank Nationalisation: The Banks That Were

July 17, 2019

This is the second part on bank nationalisation in Bloomberg Quint. The first part looked at the political economy around bank nationalisation.

The second one looks specifically at the banks that were nationalised.

Niranjan in Cafe Economics argues that Bank Nationalization did more harm than good.

Demographic changes and their macroeconomic ramifications in India

July 16, 2019

Nice short paper in RBI’s Monthly Bulletin of July-2019. It is written by Atri Mukherjee, Priyanka Bajaj and Sarthak Gulati:

This study examines the influence of demographic changes on macroeconomic outcomes in India using generalized method of moments. The estimation results show that population growth and age dependency ratio have inverse relation with the growth in real GDP and
per capita income, and positive relation with inflation. Increase in working age population, on the other hand, contributes to higher economic growth. An aging population is deflationary in nature though improves the current account balance. While the declining age dependency ratio offers a demographic dividend for India, the realisation of the same would require an environment empowering the labour force with right skills and enabling their gainful employment in productive uses.



How to Keep Central Banks Independent

July 16, 2019

Group of economists in the piece say central banks should go back to their original mandate of financial stability:

Some observers say central banks can best mitigate risks to their independence by returning to the narrow price-stability mandate that served them so well prior to the global financial crisis. But this advice is misguided: central banks must revive their original role as guardians of financial stability.


Protecting central-bank independence requires adaptation. In the post-crisis world, governments and citizens will continue to delegate increasingly broad policymaking powers to an unelected independent institution. Central banks must therefore become increasingly accountable in order to maintain their legitimacy. We need a public debate to forge agreement on a framework for central banks’ objectives, tools, and communication mechanisms. Failure to have such a discussion would pose a risk not only to central-bank independence, but also to financial stability and overall social welfare.
I doubt this will help. Take the case of European central bankers which are part of the Eurosystem. As monetary policy is given to ECB. most of these central banks look at financial stability. Yet are under pressure from Governments.
Unless, we have better rules to prevent firing of the central bankers autonomy would always be in the hands of the government.

50 years of Bank Nationalisaton: Why Indira Gandhi Nationalised India’s Banks

July 12, 2019

It was 50 years ago on July 19, 1969 that then PM Indira Gandhi nationalised 14 of the largest private sector banks.

Bloomberg Quint is doing a series on 50 years of bank nationalisation. Mr DN Ghosh, one of the main persons who wrote the nationalisation legislation wrote the first piece saying: Bank Nationalisation the original sin?

In the second article,  yours truly explores the political economy of several factors which led to nationalisation.


ECB’s new chief economist Philip Lane answers questions on Twitter

July 10, 2019

This is really cool stuff from ECB. Earlier chief economist Peter Praet also engaged in similar Twitter conversation, but I think the new chief economist Philip Lane does better at it.

May be RBI could try this as well…


Lagarde as ECB head: Germans are divided on the appointment..

July 10, 2019

Nice piece by David Marsch in OMFIF:

In the drawn-out annals of Franco-German wrangles over economic and monetary union, last week’s deal over top European posts, including the presidency of the European Central Bank, stands out as a landmark French triumph. President Emmanuel Macron has exploited Chancellor Angela Merkel’s political weakness by pushing through a solution that gives France strong levers of control over European money – and provides Germany with only scant rewards in return.

There are some constructive aspects. The nomination of Christine Lagarde, International Monetary Fund managing director, to succeed Mario Draghi on 1 November has been greeted by some in Germany as providing a much-needed boost to the ECB’s status.

A high-profile policy-maker with a brisk collegiate organisational style brings to Frankfurt a track record in handling crises. In contrast to Draghi, who has kept a low profile on the wider Frankfurt scene, Lagarde will install glamour and a touch of show business in the German financial capital. She will add to the city’s appeal to international financial firms after Britain’s departure from the European Union.

Other interpretations, for the Germans, are less positive. Officials point to the unbalanced nature of last week’s agreement. Lagarde’s appointment, scotching German hopes that the job would go to Bundesbank President Jens Weidmann, looks certain to go through the political approval process. The other important part of the deal, nomination as European Commission president of Ursula von der Leyen, the trouble-plagued German defence minister, is not secure, since she could fall victim to an increasingly strong-willed European Parliament.

Lagarde’s policy stance at the IMF, supporting both quantitative easing through ECB asset purchases and growth-boosting German fiscal activism, will now be enshrined and enhanced at the centre of European decision-making. The view from Frankfurt is that Lagarde will put on hold indefinitely much-heralded monetary ‘normalisation’. So there will be no end to ultra-easy policy and no interest rate rises to alleviate what German economists say are dangerous ECB-induced distortions in the financial system.

Safeguarding the euro in times of crisis: The inside story of the European Stability Mechanism (ESM)

July 10, 2019

In the backdrop of European sovereign debt crisis, the leaders first established European Financial Stability Facility in 2010 followed by European Stability Mechanism in 2012.

ESM has released a book (free pdf available) reflecting on the experiences of establishing the facility and so on:

Global financial leaders and ESM insiders provide a rich stock of perspectives and anecdotes that bring to life the urgency of the euro area crisis as well as the innovative solutions found to resolve it. As Europe strives to further strengthen its financial architecture, this books provides important lessons for future crisis management.
Should be a good read…

From optimal currency areas to digital currency areas..

July 10, 2019

Markus K Brunnermeier, Harold James and Jean-Pierre Landau envisage that we will have digital currency areas in future:

Global Dimensions of U.S. Monetary Policy

July 9, 2019

Maurice Obstfeld of Univ of California Berkeley in this research paper says there are 3 channels:

This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that U.S. monetary policy faces. It considers three main channels.

The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations.

The second channel is the determination of asset returns (including the natural real safe rate of interest, r*) and financial conditions, given integration with global financial markets.

The third channel, which is particular to the United States, is the potential spillback onto the U.S. economy from the disproportionate impact of U.S. monetary policy on the outside world.

In themselves, global factors need not undermine a central bank’s ability to control the price level over the long term — after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.


Budget has lived its life, and deserves rebirth

July 9, 2019

Ashok Desai, former Chief Economic Advisor in this article says we need to revamp the budget and give it a new life.

It has stopped being a budget and more about just pleasing the Parliamentarians….

Dubai airports allow using Indian Rupee: History revisits itself..

July 9, 2019

It is interesting to get such stories:

The Indian Rupee will now be accepted for transaction at all airports in Dubai, according to a leading newspaper in the United Arab Emirates.

The acceptance of Indian currency is good news for tourists from that country as earlier they lost a sizeable amount due to exchange rates, sources said.

As per a report in the Gulf News, the Indian currency is now acceptable at all three terminals of Dubai International Airportand at Al Maktoum Airport. “Yes, we have started accepting the Indian rupee,” a Dubai duty free staff told the newspaper.

Nearly 90 million passengers passed through Dubai aiports last year, 12.2 million were Indians, the report quoted. Indian travellers had to earlier convert the rupee into Dollar, Dirham or Euro before they could shop at Dubai’s duty free shops.

The Indian rupee is the 16th currency to be accepted for transaction at Dubai Duty-Free since its opening in December 1983, said the report.

Obviously, it is fashionable to call any such thing as a first time. We forget that there is a long history of Indian Rupee being widely accepted in the region:


20th anniversary of Euro: Twenty papers to better understand the single currency

July 9, 2019

Nauro Campos and Fabrizio Coricelli do us a huge favor by listing the 20 papers one should be reading to understand Euro.

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