Archive for the ‘Economics – macro, micro etc’ Category

Machine learning in UK financial services

October 18, 2019

I recently wrote a piece on Machine learning and its impact on economics and finance.

New BoE publication reviews what is happening in fin services industry in England. It finds ML is being used increasingly by the fin firms:



Video Clips of Economists Explaining for Intro Econ Classes

October 17, 2019

Superb Timothy Taylor on his super blog links to these intro econ videos:

I know a number of economics faculty who have been incorporating video clips into their classes. Sometimes it’s part of a lecture presentation. Sometimes it’s for students to watch before class. For intro students in particular, it can be a useful practice because it gives them a sense that they are being introduced to a universe of economists, not just to one professor and a textbook. The faculty member can also react to the video clip, and in this way offer students some encouragement to react and to comment as well–in a way that students might not feel comfortable reacting if they need to confront their own professor.

Amanda Bayer and Judy Chevalier have been compiling a list of video clips that may be useful for the standard intro econ class. It’s available at the Diversifying Economic Quality (“Div.E.Q”) website.  Most are in the range of 3-6 minutes, although a few are longer or shorter. The economists are often talking about their own research, but in a way that the evidence can easily be incorporated into an intro presentation.

For a few examples grabbed from lectures on micro topics. Kathryn Graddy talks about her work studying the Fulton Fish Market in New York City, and how even in a highly competitive and open environment, buyers sometimes pay different prices. (Graddy also wrote an article on this topic in the Spring 2006 issue of the Journal of Economic Perspectives.)

Petra Moser discusses her work showing that “copyright protection for 19th century Italian operas led to more and better operas being written, but the evidence also suggests that intellectual property rights may do more harm than good if they are too broad or too long-term.”

Heidi Williams describes new data and empirical methodogies to study and advance technological change in health care markets.

Kerwin Kofi Charles looks at his empirical research on how the extent to which prejudice leads to discrimination in the labor market and  how it may affect wages of black workers. 1

Cecilia Rouse talks about her research on how change in to blind procedures for the musicians auditioning for symphony orchestras led to more women being selected.

In short, the presenters in the video clips are top-quality economists describing their own research, in ways that spark interest among students. In addition, economics has an ongoing issue with attracting women and minorities. This list is heavily tilted toward presentations by economists from those groups, and there’s some evidence that when intro students see economists who look more like them, they may feel more comfortable expressing interest in economics moving forward. 

Should look them up..

Economics Nobel 2019 – Hail the trio, but the real party can wait!

October 15, 2019

My piece in moneycontrol reviewing the 2019 economics nobel.

The history of financial development of London

October 14, 2019

I had blogged about this new study by Prof Nathan Sussman which shows how London emerged as a financial centre before the 1688 glorious revolution.

Voxeu has a good interview of Prof Sussman where he explains his study and some more ideas on history of finance, London, Europe and so on..

What holds back female economists from making a career in central banking: the gender promotion gap

October 14, 2019

Luc Laeven and Ana Lamo of ECB in this article:

The underrepresentation of women in economics is perhaps nowhere as visible as in central banks. This Research Bulletin article uses anonymised personnel data to analyse the career progression of men and women at the European Central Bank (ECB). Women were less likely to be promoted up until 2010, when the ECB issued a statement supporting diversity and took measures to support gender balance. Following this change, the promotion gap disappeared. This masked a lower probability of women applying for promotion, which is partially explained by an aversion to competing, combined with a higher probability of being selected after having applied. Following promotion, women performed better in terms of salary progression, suggesting that the higher probability of being selected is based on merit, not positive discrimination. Thus, organisations such as the ECB should provide training and services that target the competition-related reasons that discourage women from applying for promotion.


Machine learning in economics: Should economists worry?

October 14, 2019

My new article in Moneycontrol. Bottomline:

It is a good time for those with a computer science background to think of a career in economics!

State’s role in the payment market is a matter of urgency: Case of Sweden

October 11, 2019

The usage of cash has declined significantly in Sweden. So much so, the polity has to pass laws to ensure people do not refuse cash as a payment.

Gabriel Söderberg of RIksbank in this note argues that the government needs to play an active role in development of e-krona.

The e-krona brings up many different issues. What is the role of the central bank and ultimately the state in society? What is money and how should we organise the payment  system so that it functions as well as possible? And what do we mean by “as well as possible”? In other words: what attributes do we as a society wish our money and our payment system to have? The economic analysis performed by the Riksbank at the start of the project has therefore been joined by a wider societal analysis and the insight that the ultimate decision on the future of the e-krona is affected by areas beyond economic analysis,
including values as to how society should be organised, and should therefore be the subject of a political decision.

Goes back to some of the fundamental questions about money. Some of these questions would have been asked when the State was beginning to get into money…



What a decade of monetary policy innovation has taught us?

October 10, 2019

Not sure there has been any innovation, but nevertheless.

Philip Lowe, Chair of the CGFS (and Governor of the Reserve Bank of Australia) and Jacqueline Loh, Chair of the Markets Committee (and Deputy Managing Director of the Monetary Authority of Singapore) in this FT piece argue:

The global financial crisis presented central banks with unprecedented challenges, and their response was to take extraordinary actions. A decade on, we can say that these measures succeeded in saving the global economy from deflation, but also introduced some distortions in a few areas of the capital markets.

Many central banks introduced unconventional monetary policy tools following the crisis. They embarked on large-scale asset purchases and expanded lending programmes, increasing their balance sheets to historic levels. Interest rates were cut below zero in several countries. Two committees at the Bank for International Settlements released complementary reports today assessing the effectiveness of unconventional monetary policy instruments and analysing the impact of large central bank balance sheets on market functioning.

Unconventional policy tools emerged out of necessity. In the countries hardest hit by the economic crisis, the financial sector stalled and stopped doing its job, hamstrung by losses and drained of liquidity. The subsequent recession sent unemployment soaring. With inflation and interest rates at low levels, the limited room for conventional policy manoeuvre was quickly exhausted.

On balance, central bankers say that the results of unconventional policies have been positive. Interventions helped smooth investor and consumer expectations and jump-start markets. Research by bankers and academics points to a positive response of economic activity to the extra stimulus provided by unconventional tools. The risk of a deflationary spiral was largely avoided, though inflation still undershot central bank objectives.

Balance sheet-expanding policies aimed at improving market functioning delivered on this front. Balance sheet policies aiming primarily to provide monetary stimulus had some side-effects on market functioning.

The path has been neither smooth nor straight, and some policies have been more successful than others. The reports conclude that corrections to the initial plans were necessary in view of the experience gathered in the course of implementation. Balance sheet policies aiming primarily to provide monetary stimulus had some side-effects on market functioning – especially in terms of reducing the availability of bonds in the market – which were addressed by central bank countermeasures.

In addition, the style of central bank communication about policy intentions and use of these tools had to be adjusted to changing circumstances and fine-tuned to the interpretations that market participants gave to policy messages. Monetary policy is a powerful but not very precise tool and prolonged easing can have side-effects. In part, it works by stimulating aggregate expenditure in a slump by encouraging investors and consumers, who have become overly cautious, to take more risk. Unconventional tools work the same way and, as the reports discuss, protracted use may also encourage imprudent behaviour by market participants.

In a world with open financial borders, it also has spillovers. Investors obtaining cheap funding at home can seek returns abroad, and recipient economies need to manage capital flows in a way that is consistent with their own priorities and needs.

The central banks that used unconventional policies report that these tools have earned a place in their policymakers’ toolbox. They can provide additional policy space and flexibility, allowing a central bank to achieve its mandate when conventional tools have reached their limits. In a world of low inflation and structurally low real rates, they may become increasingly important.

Another lesson is that the tools need to be complemented with measures that reduce side-effects. Such measures could include securities lending facilities that mitigate the scarcity effects from central bank asset purchases, and policies that reduce the impact of negative rates on banks funded by retail deposits.

Money markets must maintain sufficient capacity to function after the extraordinary liquidity is withdrawn, and central banks must preserve operational flexibility to address unexpected changes. Central banks also need to strike the right balance between providing guidance that reduces uncertainty and unduly narrowing down central bankers’ options to respond to changing circumstances in the future.

The reports suggest that unconventional tools’ effectiveness can be strengthened if central banks communicate that they are willing and able to use them. This is best done in a way consistent with each bank’s legal mandate and institutional framework.

Central bank credibility is a major determinant of the effectiveness of monetary policy and this applies as well in the use of unconventional tools. At the same time, their use is best seen as one component of an overall public policy framework that encompasses fiscal and prudential policy responses. Policymakers should avoid placing a disproportionate burden on monetary policy.

This is more like patting one’s own back!

Are Bankers like magicians who pull rabbits from hats?

October 9, 2019

Another interesting speech by Lars Rhode, head of Denmark Central Bank. See earlier ones: one, two).

This speech is given on occasion of 100 years of banking supervision in Denmark.  He starts comparing bankers to magicians!:

What are the characteristics of banking?

In the words of the historian Søren Mørch – loosely quoted – banking belongs in the department where rabbits are pulled out of top hats and ladies are sawn in half. This only works if the audience – the banks’ customers – behave as expected and do what they usually do.

If the customers do not trust the bank, there will be a run on the bank. The trick will fall flat, and the money will vanish.

We can try to regulate our way out of the risk that the trick will fall flat. But whatever we do, we can never guarantee that the banks will not experience problems. So does that mean that we should avoid regulation? The answer is “no”. Regulation is a must.

🙂 Interesting way to explain need for banking regulation.

He then reviews the history of banking supervision in Denmark which is a decent read for banking historians.

In the end:

I started by talking about pulling rabbits out of top hats and sawing ladies in half. But don’t get me wrong. Banking is no joking matter. Regulation of the banks is necessary as they play a special role in society.

Financial regulation and the financial supervisory function, which has now existed in Denmark for 100 years, are primarily there for the citizens and
firms – not for the banks.

Banking and rules undergo continuous change. Take for example payment services, where costs to society are almost halfed since 2009. Increased competition and innovation is something we should welcome.

Future financial services and functions will perhaps be delivered by new actors. They may claim they are not banks and therefore should not be
subject to supervision. However, the guiding principle should always be that it is the function which is regulated.

The new challenges for the supervisory authority are best solved in close and binding cross-border cooperation, which is precisely what the strengthened banking cooperation is about. None of us know what tomorrow brings. But it is our duty to do our best to protect the fundamental financial functions of our society.


Creating a World wide currency

October 7, 2019

Interesting food for thought piece by the trio of econs: Pierpaolo Benigno, Linda Schilling, Harald Uhlig


Political and economic drivers of pogroms

October 7, 2019

Irena Grosfeld, Seyhun Orcan Sakalli and Ekaterina Zhuravskaya in this voxeu piece:

Fiscal Policy getting traction amidst European monetary policymakers…

October 4, 2019

After Mario Draghi, French central bank Governor  François Villeroy De Galhau joins the debate.

He actually reverses the usual policy response to crisis/uncertainty. We are usually told monetary policy is the first response and then fiscal policy. He says given today’s times, fiscal policy comes first:


Law and macroeconomics – the global evolution of macroprudential regulation

October 4, 2019

When we say law and economics, it usually means micro. In this speech, Randal Quarles of Federal Reserve in this speech says law and macro are connected as well:


What Moscow’s Sheremetyevo airport teaches about transition economics

October 4, 2019

Marcus Shera, a student at George Mason University reflects on his experiences travelling to the airport.

Overall experience:

No matter what economic system you live under, scarcity still exists, and choices have to be made along some margin. Socialism trades prices and the knowledge bundled within for politics, bureaucracy, and oversight. Some of the old way still continues in Russia, but in the meantime, the little kiosks will continue to outperform the results of bloated and dying central planning.


Early French and German central bank charters: Central Banking before Riskbank and Bank of England

October 3, 2019

Superb ECB paper by Ulrich Bindseil.

We usually say central banking started with Swedes and British. There were earlier attempts too but their charters were not accessible and available in English. Bindseil translates the charters of six French and German banks starting with Nurnberg exchange and lending bank of 1498. They suggest central bamks arrived much earlier:

In some recent studies, the question of the origins of central banking has been revisited, suggesting that beyond Swedish and British central banking, a number of earlier European continental institutions would also have played an important role. However, it has often been difficult to access the charters and regulations of these early central banks – in particular in English.

This paper contributes to closing this gap by introducing and providing translations of some charters and regulations of six pre-1800 central banks in France and Germany. The six early public banks displayed varying levels of success and duration, and qualify to a different degree as central banks. An overview table maps the articles of the early central banks’ charters and regulations into key central banking topics.

The texts also provide evidence of the role of central banking legislation, and of the distinction between, on the one side, the statutes and charters of the banks, and on the other side the operational aspects which tend to be framed by separate rules and regulations.

Finally, the texts provide evidence of the policy objectives of early central banks, including in particular those of a monetary nature. To put these documents into context, the objectives, balance sheet structure, achievements and closure of each central bank are briefly summarised.


Estimating global poverty in R and Stata

October 1, 2019

World Bank has put up the poverty data which can be easily plugged into R and Stata.

WB’s data blog reports:

The World Bank’s global poverty measures published through the PovcalNet website can now be accessed directly from within R and Stata. The R package povcalnetR and the Stata command povcalnet offer the same functionality as the website, namely the estimation of poverty at any poverty line for individual countries, groups of countries, or entire regions. Accessing PovcalNet directly from within R and Stata is a major improvement to the usability of the tool; for example PovcalNet results can be directly merged with any other R/Stata dataset. In this blog, we show how the commands can be downloaded and illustrate their use with an example. We will illustrate the use of the commands with a series of blog posts over the next few weeks. A more detailed description with more examples can be found in the github pages (R and Stata), as well as Castaneda et al. (2019) for the Stata command. We encourage users to send us comments and suggestions, and to report any bugs in the github issues pages (R and Stata).

PovcalNet reports the World Bank’s official global, regional and country-level poverty estimates, as well as a range of inequality statistics. It is managed jointly by the Data and Research Groups within the World Bank’s Development Economics Division, and draws heavily upon a strong collaboration with the Poverty and Equity Global Practice, which is responsible for gathering and harmonizing the underlying household survey data. The website is based on a web API, which was documented in more detail as part of the September 2018 PovcalNet update (see Zhao, 2018). This means that every query to the PovcalNet website (e.g. estimate the poverty headcount ratio at $2 per day in Bangladesh in 2016) generates a URL that returns the results in a machine-readable format. The R and Stata packages query the PovcalNet API and read the results directly into R/Stata.

The R package povcalnetR can be installed from github with

install.packages(c(“devtools”, “httr”))


and will soon be available in CRAN.

The Stata povcalnet command can be installed from SSC by typing:

ssc install povcalnet

The development version, which includes the latest updates and features, can be downloaded from github by using the github Stata command (developed by E. F. Haghish):

net install github, from (“”)

github install worldbank / povcalnet

It is important to understand that PovcalNet reports estimates for two types of years: the survey year, which is the year for which the welfare variable was collected, and the reference year, which is the year for which global poverty estimates are produced. The reference year estimates make additional assumptions to align household surveys, that may be conducted at infrequent intervals, to a common year for which poverty can be estimated for as many countries around the world as possible. Currently, the available reference years are 1981, 1984, 1987, 1990, 1993, 1996, 1999, 2002, 2005, 2008, 2010, 2011, 2012, 2013 and 2015. Inequality estimates are only available for the survey-years.

The next line of code queries the global and regional estimates of extreme poverty at the international poverty line of $1.9 per day for all the reference years:

R: df <- povcalnetR::povcalnet_wb()

Stata: povcalnet wb, clear

With a few additional lines of code (R and Stata), the changing geographic distribution of extreme poverty can be easily graphed. In 2015, Sub-Saharan Africa accounted for more than half of the global poor, and together with South Asia for more than 85 percent. It is clear that the reduction in global poverty was driven by rapid progress in East Asia. In recent years, the number of poor has also fallen steadily in South Asia. This stands in sharp contrast with Sub-Saharan Africa, where the total number of poor people has actually been increasing over time. As discussed in this report, this shift in the geography of global poverty from high-growth (East Asia and recently South Asia) to low-growth (Sub-Saharan Africa) regions also implies a likely slowdown in the future reduction of global poverty (see this blog for projections beyond 2015 to 2030).


Mario Draghi interview: He reflects on the 8 years as ECB President

October 1, 2019

Mario Draghi steps down as ECB President at end of this month.

In this FT interview, Draghi discusses and reflects his term:


The Puzzling Lure of Financial Globalization

October 1, 2019

Arvind Subramanian and Dani Rodrik in this Proj Syndicate piece argue that financial globalisation continues to excite economists:

Although most of the intellectual consensus behind neoliberalism has collapsed, the idea that emerging markets should throw their borders open to foreign financial flows is still taken for granted in policymaking circles. Until that changes, the developing world will suffer from unnecessary volatility, periodic crises, and lost dynamism.


After holding off for decades, China has finally embraced financial globalization, announcing recently that it would eliminate capital controls to allow unfettered short-term foreign inflows (so-called hot money). By contrast, after decades of boom-bust cycles, Argentina is facing another a macroeconomic crisis, and has finally imposed capital controls to prevent a catastrophic decline in its currency.

Both of these episodes reveal the intellectual hold that financial globalization still has on policymakers, despite its history of failure. Why, after all, would China abandon capital controls now, and what took Argentina so long to adopt such obviously necessary measures?

The Chinese economic miracle has many sources. In addition to the turn to markets, China has benefited from exports and foreign investment, internal migration, and the Maoist legacy of a public education and health system. It is also the civilizational heir to a strong, effective state with an enlightened, albeit ruthless, leadership. Its people collectively crave stability. But an important factor in China’s rise was the decision not to open the economy to capital flows

Consider the following counterfactual history. In the late 1990s, when China’s economic miracle was becoming evident, it could easily have succumbed to the prevailing orthodoxy on financial globalization. Had it done so, the likely outcome would have been a surge in foreign capital chasing high Chinese returns, rapid appreciation of the renminbi, slower export growth, and lost dynamism. China’s export machine would not have become the juggernaut that it is, and its economy may well have suffered through much more volatility as a result of the fickleness of foreign capital. In fact, Argentina – with its periodic macroeconomic volatility and recurring financial crises – offers a perfect illustration of these downsides.

Nearly every major emerging-market financial crisis of the past few decades has been preceded or accompanied by surges in capital inflows. That was true of Latin America in the 1980s, India in 1991, Mexico in 1994, and East Asia and Russia in the late 1990s. It was also true of Brazil, Turkey, and Argentina in the early 2000s; the Baltics, Iceland, Greece, and Spain in the late 2000s and early 2010s; and the “Fragile Five” emerging-market economies (Brazil, India, Indonesia, South Africa, and Turkey) in 2013. And it is true of Argentina today.

To be sure, capital flows have often reflected deeper policy problems or imbalances within a given emerging market. But they are also usually the necessary transmission mechanism for crises, and thus have magnified the eventual costs to those economies. Although most tenets of the neoliberal consensus – privatization, deregulation, trade integration, immigration, fiscal discipline, and the primacy of growth over distribution – are now being challenged or outright rejected, financial globalization remains a glaring exception.

Well, there is too much money and too many careers are at stake and they all try their best to keep the circle going..

The financial development of London in the 17th century revisited

September 30, 2019

Fascinating research by Nathan Sussman of Graduate Institute of Geneva.

The history of London as a Financial centre is always an interesting area of research:

Most research on the development of English financial markets begins with the Glorious Revolution of 1688. 

Sabine Lautenschläger, Germany’s representative on the European Central Bank’s executive board resigns!

September 27, 2019

Missed this development:

Today, Sabine Lautenschläger, Member of the Executive Board and Governing Council of the European Central Bank (ECB), informed President Mario Draghi that she will resign from her position on 31 October 2019, prior to the end of her term of office. Ms Lautenschläger has been a Member of the Executive Board and Governing Council since 27 January 2014 as well as serving a full term in office as the Vice-Chair of the Supervisory Board of the Single Supervisory Mechanism (SSM).

President Mario Draghi thanked her for her instrumental role in helping set up and steer Europe-wide banking supervision, a key pillar of banking union, as well as her unwavering commitment to Europe.

She was unhappy with the ECB decision to restart the bond buying program. This means there is no German on ECB Board, a central bank designed on the lines of Bundesbank.

I had blogged how German presss see Draghi as a devil.

Bundesbank chief Weidmann in this interview says ECB has gone too far:

New bond purchases and even higher penalty interest rates for banks. Is that what’s needed in your opinion, too?
Economic activity has cooled down, mainly in Germany but also elsewhere in the euro area. So inflation is expected to be somewhat lower. The ECB Governing Council has now adopted a very comprehensive package that will provide even more monetary policy accommodation. But I think it has gone too far with this decision. You see, the economic situation is not all that bad, wages are growing strongly, and the spectre of deflation – that is, of persistently contracting prices and wages – is nowhere to be seen.


You’re a longstanding critic of the ECB’s monetary policy – but are your views falling on deaf ears at the ECB? Doesn’t Draghi care what you say or do?
I’ve always singled out government bond purchases for criticism because there is a danger they might blur the boundary between monetary and fiscal policy. That is why we established clear constraints for these purchases on the Governing Council, not least because I pushed for them. So my concerns were taken on board. These new purchases, however, will call these constraints into question in the foreseeable future. And incidentally, I’m not alone with my critical stance. Mario Draghi, remember, indicated that opinion is divided on the Governing Council.

Are zero interest rates destroying our savings culture and eroding confidence in our economic system?
You’re right to say that monetary policy is currently placing a strain on savers. But it’s always a good idea to put some money away for later and to provide for old age, even if interest rates are low. And it’s not as if people have stopped saving altogether. But I do agree with your point that when a public sector institution like the central bank chooses which instruments to use, it needs to make sure that its actions do not deeply unsettle people. That also means that people can count on their money retaining its value, that is to say, that the central bank will pursue its objective of price stability.

A big development!

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