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

How and why did we start collecting economics statistics (such as inflation, GDP etc.): Case of US

January 21, 2019

A really nice paper by Prof Hugh Rockoff of Rutgers Univ.

He discusses an area which is seldom discussed in economic research which is origins of statistics/data which help us understand the trends in an economy. How and why did we start collecting data on things like inflation, employment and output? He discusses the US case:

Although attempts to measure trends in prices, output, and employment can be traced back for centuries, in the main the origins of the U.S. federal statistics are to be found in bitter debates over economic policy, ultimately debates over the distribution of income, at the end of the nineteenth century and during the world wars and Great Depression. Participants in those debates hoped that statistics that were widely accepted as nonpolitical and accurate would prove that their grievances were just and provide support for the policies they advocated.

Economists – including luminaries such as Irving Fisher, Wesley C. Mitchell, and Simon Kuznets – responded by developing the methodology for computing index numbers and estimates of national income. Initially, individuals and private organizations provided these statistics, but by the end of WWII the federal government had taken over the role. Here I briefly describe the cases of prices, GDP, and unemployment.

Most of the time the origins of these stats was due to some or the other crisis. How some people (economists/statisticians) responded to calls from the polity to develop these numbers is quite a story…


Gross National Happiness and Macroeconomic Indicators in the Kingdom of Bhutan

January 18, 2019

Sriram Balasubramanian (World Bank) and Paul Cashin (IMF) in this interesting paper:

This paper examines the origins and use of the concept of Gross National Happiness (or subjective well-being) in the Kingdom of Bhutan, and the relationship between measured well-being and macroeconomic indicators. While there are only a few national surveys of Gross National Happiness in Bhutan, the concept has been used to guide public policymaking for the country’s various Five-Year Plans. Consistent with the Easterlin Paradox, available evidence indicates that Bhutan’s rapid increase in national income is only weakly associated with increases in measured levels of well-being. It will be important for Bhutan to undertake more frequent Gross National Happiness surveys and evaluations, to better build evidence for comovement of well-being and macroeconomic concepts such as real national income.

Some history:

The most important element of the Bhutanese model of development has been the concept of Gross National Happiness (GNH), and the GNH index and tool which has been formulated alongside this philosophy. GNH was in Bhutan in 1972 by the Fourth King of Bhutan, Jigme Singhye Wangchuk, the father of the current king, Jigme Khesar Namgyel Wangchuck (see Government of Bhutan, 2015). He declared that “Gross National Happiness is more important than Gross Domestic Product”. The King had envisioned an economic development model which was based on the tenets of Buddhist philosophy and holistic development, which had its core functions preserving the environment and emphasizing the role of happiness and collective well-being in the lives of people.

This emphasis on happiness was to override the role of monetary incomes which was at the heart of the GDP driven global development model. With assistance from international organizations and bilateral development partners, the government also incorporated major development related
issues into its agenda such as sustainability, climate change and inequality. While GNH has evolved over time, in its quest to stay relevant, the role of GDP in Bhutan has also changed through the years. In the decades of the 1980s and 1990s, GDP was primarily used as a tool for Bhutan’s financial indicators and as a benchmark for access to international grants and loans from multilateral agencies. Even though publicly the primacy of GNH is being advocated by Bhutan, GDP measurements have thus also played a substantive role in the country’s development.

In this context, this paper will look at the relationship between the evolution of GNH and the evolution of GDP and other macroeconomic indicators.

Should read the whole thing..

Economics helps explain why suicide is more common among Protestants…

January 16, 2019

Profs Sascha Becker (Univ of Warwick) and Ludger Woessmann (Univ of Munich) in this piece:


Brexit: Blame it on the 2008 banking crisis

January 16, 2019

Prof Nicholas Crafts of Univ of Warwick:

Brexit in 2019 and the banking crisis in 2007 to 2009 are usually seen as unrelated events. This column argues that they are in fact closely connected. The austerity policies embarked on in response to the fiscal damage resulting from the banking crisis triggered the protest votes of left-behind voters, which at the margin allowed Leave to win the referendum vote. The implication is that the economic costs of the banking crisis are much larger than is usually supposed.


International remittance through block chain technology: Case of Pakistan

January 16, 2019

Interesting to note that State Bank of Pakistan (their central bank) is promoting international remittances to Pakistan through blockchain technology.

SBP Governor Tariq Bajwa remarked on the inaugural ceremony:

1. It is indeed very exciting for me to launch this initiative by Telenor Pakistan that would enable the transfer of cross border remittances using BlockChain
technology in near real time. This would bring convenience and efficiency for both remitters and their beneficiaries. For this, I would like to congratulate
ANT Financial, Telenor Microfinance Bank and other key stakeholders such as Standard Chartered Bank for being the pioneers in the adoption of new
technologies for providing a payment solution, which many other market players have only been thinking of. This puts Pakistan on the map of few
countries in the world that have launched International Remittance using Block Chain Technology.

2. Though this initiative, Valyou in Malaysia and Easypaisa in Pakistan will facilitate cross-border remittance service through e-wallet platforms, which is
based on block chain technology developed by Alipay, a subsidiary of ANT Financial. This block chain based wallet-to-wallet remittance service provides
instant and secure way for Pakistani emigrants to transfer money from Malaysia to Pakistan and will significantly improve the current amount of USD
1 billion received from Malaysia in home remittances.

Remittances play a crucial role in Pakistan: and are equal to 6% of GDP:


Remembering CD Deshmukh on his 123rd Birth Anniversary…

January 15, 2019

Nice tribute from Remya Nair:

In 1943, the Reserve Bank of India got its first Indian governor in Chintaman Dwarkanath Deshmukh, a civil servant luminary who went on to do a great many things for the country in the early years after Independence.

Deshmukh’s appointment to the independent regulatory body came at a time when India was ruled by the British, and predictably in the face of opposition from various sections of the government who wanted the tradition of a European helming the central bank to continue.

But he battled all these odds to become the third governor of RBI.

What worked in his favour was his long association with the bank. Deshmukh was appointed as a government director on the bank’s board and subsequently held the posts of secretary and deputy governor before being elevated to become a governor.

His association with the central bank did not cease after he demitted the Governor’s office in 1949. Deshmukh was later appointed as the union finance minister marking a 17-year long association with the central bank.

On his 123rd birth anniversary, ThePrint takes a look at the life of the civil servant who served the country in various capacities.

We need more and more biographies of people like Mr Deshmukh…

Italy’s writing on the wall

January 14, 2019

Prof Harold James in this piece:

It is often said that Italy’s divergence from the rest of Europe (in terms of per capita income) started either with the ratification of the Maastricht Treaty in 1993 or with the adoption of the euro in 1999. But this chronology masks a more profound transformation in modern Italy. The early 1990s, after all, is also when the old Italian two-party system disintegrated, with both the center-right Christian Democrats and the center-left Socialists succumbing to the Tangentopoli (Kickback City) corruption scandal.

Behind the headlines about corruption was the fact that older ideas about shared responsibility no longer applied. Thus, the dissolution of Italy’s two main parties led to even more – and more institutionalized – corruption, embodied by former Prime Minister Silvio Berlusconi. A real-estate developer cum entertainment and media tycoon, Berlusconi combined the spectacle of serial infidelity and glamorous young women with a populist politics based on tax cuts and sympathy toward autocratic petro-states like Russia. Berlusconi’s political style – a combination of buffoonish narcissism and unbridled venality – was Trumpism avant la lettre.

Italy’s political revolution was due not to chance, but to specific social developments dating back to what Italians call the “Years of Lead” of the 1970s. That period and its implications for the present are the subjects of Edoardo Albinati’s long, meandering, but stunningly successful novel La scuola cattolica, which will be published in English this year.

Albinati combines pointillist description with far-reaching social analysis. As a former prison teacher in Rome, he is able to draw on a wealth of first-hand encounters with a wide cross-section of Italian society. In fact, the novel is semi-autobiographical, because it revolves around the 1975 “Circeo Massacre,” a brutal rape and murder that involved some of the author’s upper-middle-class schoolmates.

Albinati uses this shocking historical episode to analyze the disintegration of the Italian bourgeoisie and the decline of traditional religion. His is a story about the uselessness of men in modern society. For most of human history, men’s superior physical strength, aggression, and prowess in combat translated into unchallenged social and political dominance. But in the new world of office politics, those with creativity and the ability to navigate complex social relations have the upper hand.

This profound social transformation left men feeling constantly under attack, as well as desperate to demonstrate their masculinity. Having grown up with the social privileges of the post-war era, they found themselves suddenly condemned to irrelevance – a useless gender, comparable, in Albinati’s telling, to a lizard’s tail that twitches for some time after being severed. Many reacted with rage and violence. Some sought the community of neo-fascist movements channeling an aggressive form of masculinity, while others joined far-left groups with their own cults of violence.

In the world Albinati describes, money assumes a special importance. The extension of new freedoms to a wider class of people suggests that anything is possible, but only if one has the means. Albinati admits, grudgingly, that the “spores of Marxism” have led him to this conclusion. But it is nonetheless inescapable: money creates the illusion of more freedom, and thus increasingly has come to define the modern world. Though Albinati’s novel is set in Italy, that world is its subject, leaving open the question of whether there can be any escape from the unchecked pursuit of personal gain that underlies today’s prevailing social and political malaise.

The Roman Empire was unsalvageable after its fall, and it took the Italian Peninsula almost a thousand years to rediscover its classical heritage. Albinati’s message, which deserves to be taken seriously, is that to bring about a new Renaissance today will require demystifying the cult of freedom and strengthening norms of shared responsibility in politics, economics, and social life.

A Reflection on the 50th Anniversary of Hardin’s Tragedy of the Commons: What about digital commons?

January 11, 2019

Interesting paper by Frank Nagle of HBS.

On the 50th anniversary of Garrett Hardin’s “The Tragedy of the Commons,” this article considers the benefits and potential downsides of the digital commons, which emerged well after Hardin wrote his seminal article. Unlike the physical world Hardin wrote about, the digital world is essentially infinitely abundant, which leads to a very different tragedy and many new opportunities.


In particular, as the digital commons leads to more firms structured as platforms whose business models result in the gamification or leisurification of work, people are increasingly doing work without getting paid for it (or at least getting massively underpaid). A deeper understanding of this phenomenon may
help to explain puzzles related to wage inequality and the wealth gap, which could inform regulatory policies to help better address these concerns. Relatedly, as value creation, innovation, and production increasingly move outside the boundaries of the firm, the role of firms in society may begin to change. Given that firms have provided the social safety net (healthcare, retirement, etc.) in the United States for the last century, policies will need to address the increasing number of people that are not directly employed by a firm and therefore have no firm provided safety net. Similar questions could arise as to the functions
of government and financial systems in the face of the opportunities the digital commons presents for true democratization of traditional institutions. However, such a society would still need policies to protect individual citizens from being exploited. 


Agricultural Loan Waiver: A Case Study of Tamil Nadu’s Scheme

January 10, 2019

Deepa S. Raj and Edwin Prabu of RBI have this interesting and timely paper:

This paper examines the impact and implications of Tamil Nadu’s agricultural loan waiver scheme of 2016, based on data collected through a field survey of seven districts of the state as well as farm loan transactions data obtained from select primary agricultural co-operative credit societies. The state government’s loan waiver scheme was applicable only to agricultural loans availed by small and marginal farmers, while other farmers with land holdings of above 5 acres were not eligible for the waiver benefit.

Empirical findings using Regression Discontinuity Design (RDD) suggest that in the immediate post-waiver period near the cut-off acreage of 5 acres, the probability of obtaining credit was higher for non-beneficiary farmers than for beneficiary farmers. However, the differentiation in post-waiver access to credit to the beneficiary farmer and the non-beneficiary farmer comes down as the supply of funds for agricultural loans normalises.

The paper also has a summary of the previous debt waiver schemes and their impact….

Why Adam Smith favoured public education?

January 10, 2019

Prof Alex Thomas of APU in this piece says Smith was hardly a one idea or one phrase economist. His canvas was much wider than believed:

The authority of Adam Smith is frequently invoked by supporters of the free market, who argue for extending the market forces to all conceivable goods and services and eliminating any kind of government intervention in markets. However, Smith’s The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations make it clear that he was not a laissez faire or free market capitalism apologist.

Smith favoured liberal capitalism over the extant socio-economic arrangement (elements of feudalism and mercantilism). While feudalism was characterised by the rule of the nobility/landowners, mercantilism was characterised by state monopoly over trade. The East India Company was an example of the latter. It is in this historical context that Smith called for the state to withdraw its monopolistic interventions in both external and internal commerce.

Contrary to public opinion, Smith presupposed the government provision of legal infrastructure, defence, transport infrastructure and education for the proper functioning of liberal capitalism. For him, the responsibility of providing institutions “for promoting the instruction of the people” is one of the chief duties of the state. The state, he said, must undertake this responsibility just as it accepts responsibility “for protecting society from the violence and invasion of other independent societies”.

The appropriators of Smith also forget his telling commentary on the role of power in society. One aspect of this relates to the power employers have over workers. The second aspect relates to the inequality of power, expressed in the form of status and ranks.

Modern appropriators of Smith also make abundant use of the “invisible hand” metaphor. But Smith used this metaphor only once in Wealth of Nations, and twice in his other writings in different contexts.

His views on public education:


Should policymakers create towns artificially?

January 10, 2019

Alexandra L. Cermeño and Kerstin Enflo in this piece look at evidence from Swedish towns:

Urban growth is crucial for modernisation, and the wave of new towns in China since the 1980s is one example of a strategy employed by policymakers to encourage the process. This column analyses the long-run success of a town foundation policy in Sweden between 1570 and 1810. While the ‘artificially’ created towns failed to grow in the short term, they eventually began to grow and thrive, and today are as resilient as their medieval counterparts. 

We stress that credible coordination efforts based on investments may substitute for agglomeration economies and natural advantages when creating a new town, as long as any natural constraints to population growth have been removed. However, by demonstrating the initial failure of the town foundation policy, we underline the importance of overcoming any natural constraints to urban growth. Finally, and in relation to the debate about the Chinese ‘ghost towns’, our paper shows that ‘artificially’ founded towns may take time to thrive.

In light of our findings, and the examples of the Swedish kings, policymakers should consider how to signal to potential migrants and investors that they’ve committed to improving an area. Simultaneously, they must identify the potential constraints for growth in a post-industrial world. Finally, policymakers should be aware that their choices may trap populations in ‘sub-optimal’ locations for centuries.

Nevertheless, we note that the founded towns have persisted until today and appear neither better nor worse than their medieval counterparts in terms of long-run resilience. Thus, while kings may not be able to create towns that thrive, path-dependency forces certainly can. 


Remembering 2018: Year of economics’ anniversaries and milestones

January 9, 2019

The blog has been on a long break. Hoping to get back on track.. Here is the first post for 2019.

The year 2018 was quite historic given several anniversaries and milestones completed during the year. We just saw how the leaders of developed world had congregated at Paris recently, paying homage on the 100th anniversary of end of World-War-I. World War-I in turn shaped the worldwide polity and economy over the years whose anniversaries will come in future.

Having said that, the year 2018 was quite a remarkable year for anniversaries and birthdays in the field of economics, finance and business as well.  In this article I list these key milestones.

I start with central banks where we saw several such birthdays. The world’s first central bank –Riksbank of Sweden- celebrated its 350th year amidst celebrations in Stockholm. Riksbank hardly started as a central bank and was more like a bank to serve the monarchy. The central banking as a concept developed with evolution of Bank of England in the 19th century. Sweden was also the first country to start banknotes in Europe. This is ironical 2018 also marks 10th year of bitcoin, an idea which threatened the mere idea of a central bank and physical currencies.

Next we saw Denmark Central Bank celebrate 200 years. The other Scandinavian central bank of Norway was established 2 years ago in 1916. All these three central banks started mainly to counter the over-issuance of banknotes by private banks.

The next set of central banks in the list are those in Ireland, China, Pakistan and Malta which celebrated 75th, 70th, 70th and 50th birthdays. In particular, the history of State Bank of Pakistan is interesting as it was established on 1 July 1948, under highly trying circumstances after the Partition.

Some countries celebrated anniversaries of certain currencies which is different from anniversaries of central banks. For instance, in 1868 made Pestada as the official currency and let Escudo disappear, marking 150 years since the event. We also Czech authorities commemorate 100 years of their currency Koruna (after dissolution of Austro-Hungarian empire after World War-I) and Armenians celebrate 25 years of their currency Dram (after breaking with the USSR).

For connoisseurs of Indian numismatic history, 2018 also marks 100 years of Osmania Sicca Rupee, the currency issued by Princely State of Hyderabad (Kashmir also issued its own currency but circulated briefly). Hyderabad always wanted to issue their own currency but were denied by British. They finally got an opportunity in 1918, as British India struggled with supplies of silver during World War I. Infact, both notes of Rupee 1 and Rupee 2.5 were issued for the same reason in 2017. Post-Partition, Osmania Rupee went through interesting times as the Hyderabad State first wanted to be a part of Pakistan and later was made part of Indian Union.

Talking about British empire, the year also marked the 350th year of start of British empire in India. The East India company was leased a bunch of islands (Bombay) by the British Crown in Mar-1668 and they landed on the islands in Sep-1668. Benita Fernando looked at the spate of events here: (

Few Indian companies also completed their milestones starting from India’s oldest business group that of Tatas celebrating its 150 years. Their own website says: “In 1868, aged 29 and wiser for the experience garnered by nine years of working with his father, Jamsetji started a trading company with a capital of Rs 21,000.” This is followed by Hindu newspaper marking 140 years followed by three businesses marking their centenaries: Britiannia, Saraswat Bank and Mysore Sandal Soap.  Hindu newspapers is also celebrating 25 years of its business paper – Hindu Business Line.

The 1991 reforms led to wide-scale reforms including those in financial sector with advent of National Stock Exchange and allowing Private Sector in Mutual Funds as the marquee of these reforms. Both competed their 25 years in 2018 with NSE hosting Prof Robert Merton in the R.H. Patil memorial lecture. The media discussed the events with the fund managers who were around during that momentous time. More importantly, the torchbearer of these reforms Securities Exchange Board of India also completed its 30 years. It started in 1988 as a non-statutory body and gained steam after 1991 reforms and Harshad Mehta Scam.

Talking about reforms, one has mention China competing its 40 years of liberalization and reforms. After the Mao-era, Chinese authorities began to gradually to open up their economy to external markets and becoming a force in world economy.

We now look at some of the names and ideas that shaped world and Indian economy. We start with who else but Karl Marx who continues to divide the world thinkers despite being born 200 years ago. A history of Indian political economy can never be complete without discussing the role of PC Mahalonobis as he completed 125 years in 2018. There are two seminal research papers which made a phenomenal contribution to economic research marking 50 years. The first is the highly celebrated work by Milton Friedman where he questioned the trade-off between inflation and unemployment as espoused by Philips Curve. The second not so celebrated is Douglass North’s paper where he estimated shipping productivity from 1600-1855. The other paper which deserves mention is Paul Krugman’s paper written in 1998, which analysed the Japanese crisis of 1990s and famously asking their central bank to “credibly promise to be irresponsible”.

It is good to end with Krugman’s paper, as the developed world faced near similar shock as Japanese economy leading to referring that very paper. We have just completed 10 years since Lehman crisis making it the shortest phase of history (along with bitcoin) mentioned in this article. The policymakers and academicians worldwide, have written and reflected on the lessons from the 2008 crisis. There is a wide belief that lessons have been learnt and we are unlikely to see repeat of the events. We will have to wait and see history enfold to see how much of this optimism is indeed true.

Till then, bidding adieu to a historic 2018 and welcoming 2019!

40th anniversary of China’s economic reform and the 70th anniversary of its central bank: Some perspectives

December 28, 2018

Yi Gang, Governor of the People’s Bank of China, gives a speech on the twin anniversaries:

This year marks the 40th anniversary of the reform and opening-up and the 70th anniversary of the founding of the People’s Bank of China (PBC). As components of China’s tremendous achievements in the progress of the reform and opening-up, historic changes in the financial sector have taken place in the past four decades, and a modern financial market system has been broadly established which, adapting to the socialist market economy with Chinese
characteristics, is vital and internationally competitive.

And over the past 70 years, under the leadership of the Communist Party of China (CPC), the PBC has made extensive exploration and innovation, overcome formidable obstacles, pioneered in the promotion of financial development, reform and opening-up at different times, kept creating new prospects for the financial sector, and made significant contributions to China’s economic and social development.

In China it is clear. Central Bank functions under the aegis of the Government and there is no quarrel over central bank independence. The markets do not even care whether the central bank is any independent or not.

Gang lists several changes which have gone in the 40 years in financial sector. Useful speech as we know little of the developments in China..

2008-18: A decade where mainstream academic world and mainstream policy world went own ways..

December 28, 2018

JW Mason gives a nice overview of macroeconomic research in the decade:

He says the macro research may not have changed in academic world but in policy world there are sure changes.

Has economics changed since the crisis? As usual, the answer is: It depends. If we look at the macroeconomic theory of PhD programs and top journals, the answer is clearly, no. Macroeconomic theory remains the same self-contained, abstract art form that it has been for the past twenty-five years. But despite its hegemony over the peak institutions of academic economics, this mainstream is not the only mainstream. The economics of the mainstream policy world (central bankers, Treasury staffers, Financial Times editorialists), only intermittently attentive to the journals in the best times, has gone its own way; the pieties of a decade ago have much less of a hold today. And within the elite academic world, there’s plenty of empirical work that responds to the developments of the past ten years, even if it doesn’t — yet — add up to any alternative vision.

For a socialist, it’s probably a mistake to see economists primarily as either carriers of valuable technical expertise or systematic expositors of capitalist ideology. They are participants in public debates just like anyone else. The profession as the whole is more often found trailing after political developments than advancing them.


Many critics were disappointed the crisis of a 2008 did not lead to an intellectual revolution on the scale of the 1930s. It’s true that it didn’t. But the image of stasis you’d get from looking at the top journals and textbooks isn’t the whole picture — the most interesting conversations are happening somewhere else. For a generation, leftists in economics have struggled to change the profession, some by launching attacks (often well aimed, but ignored) from the outside, others by trying to make radical ideas parsable in the orthodox language. One lesson of the past decade is that both groups got it backward.

Keynes famously wrote that “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” It’s a good line. But in recent years the relationship seems to have been more the other way round. If we want to change the economics profession, we need to start changing the world. Economics will follow.


This line-  the image of stasis you’d get from looking at the top journals and textbooks isn’t the whole picture, the most interesting conversations are happening somewhere else – is quite true. You get far more ideas reading newspapers and blogs (most of which ironically are written by top academicians) than reading journals and textbooks..

North and South Koreas try break ground on future railway project

December 27, 2018

The two Koreas are trying to work towards peace via the Railways:

A South Korean delegation crossed the heavily guarded border into North Korea on Wednesday as the two countries held a symbolic groundbreaking ceremony for an ambitious project to modernize North Korean roads and railways.

The ceremony, which took place in the North Korean border town of Kaesong, came after the Koreas conducted a joint survey on sections of the North’s railway system that they someday hope to link with the South. The project is one of the several peace gestures to which North Korean leader Kim Jong Un and South Korean President Moon Jae-in agreed at a historic summit in April.

A nine-car South Korean train carrying about 100 people — including government officials, lawmakers and aging relatives separated by the 1950-53 Korean War — rolled into Kaesong’s Panmun Station. The train was carrying a slogan on its side which read: “Let’s open an era of peace and prosperity together — reconnection of South-North railways and roads.

They were greeted by North Koreans including Ri Son Gwon, who leads an agency which handles inter-Korean affairs. Representatives from China, Russia and Mongolia were also present, as were officials from the United Nations including Armida Alisjahbana, executive secretary of the UN’s Economic and Social Commission for Asia and the Pacific.

However Seoul has stressed that peace possible only when North denuclearizes. The earlier similar peace ways did not make progress due to North’s continued insistence on nuclear weapons and tests…

Germany mulls introducing mosque tax for Muslims like the church tax for catholics

December 27, 2018

Did not know that some of the European countries collect church taxes.

Germany which is one of these countries plans to introduce a mosque tax:

Lawmakers from Germany’s grand coalition government said on Wednesday that they were considering introducing a “mosque tax” for German Muslims, similar to the church taxes that German Christians pay.

Thorsten Frei, a member of Chancellor Angela Merkel’s Christian Democrats (CDU) told Die Weltdaily that a mosque tax was “an important step” that would allow “Islam in Germany to emancipate itself from foreign states.”

In Germany, church taxes are collected from practicing Catholics and Protestants in order to fund church activities. They are collected by the state and then transferred to religious authorities.

In the absence of a similar tax, mosques in Germany are reliant upon donations, raising concerns about possible financing by foreign organizations and governments, which has sometimes prompted questions about the promotion of fundamentalist ideologies. For example, there has been growing concern about the influence of the Turkish-Islamic Union for Religious Affairs (DITIB), an arm of the Turkish government based in Germany.

Nice bit..

Post-Brexit, will Paris emerge as an international financial centre?

December 27, 2018

My new piece in Moneycontrol. I discuss whether Post-Brexit, Paris will emerge as an international finance centre.


Central Bank of Seychelles celebrates 40th anniversary

December 26, 2018

The Central Bank of Seychelles was established on 1st Dec 1978 as Seychelles Monetary Authority:

Central Banking in the Seychelles started as far back as 1936, with the establishment of the Seychelles Currency Board, similar to other British colonies of the time. The Seychelles Notes Ordinance and the Coinage Ordinance of 1936 bestowed the responsibility for the issue and redemption of Seychelles currency on the Colonial Secretary and later, with the Financial Secretary, acting as Currency Commissioner.


The weaknesses of the Currency Board were uncovered by its inability to adapt and assume control over a rapid expansion of the domestic banking sector in the seventies brought about a by a boom in tourism. With the Board having no mandate to undertake monetary policy, adherence to a fixed exchange rate regime, implied that the domestic money supply would fluctuate according to the flows of external capital. This situation was as expected not favourable to stable and sustainable economic development. As a result, in August 1976, an International Monetary Fund (IMF) Mission at the invitation of the Seychelles government undertook a study of the financial system and recommended structural and operational improvements in the Currency Board system.

Following IMF recommendations the government firmly decided to create a central banking institution to regulate money supply, to supervise the banking system and generally to foster financial conditions conducive to orderly and balanced development. . However, given the rudimentary structure of the financial system and the lack of local expertise, it was decided that, as an interim step, a Monetary Authority be set up, with the establishment of a fully fledged Central Bank planned for a later date. Hence, on November 24, 1978 the Seychelles Monetary Authority Decree was enacted and the Seychelles Monetary Authority (SMA) was founded under this decree on December 1, 1978. All the responsibilities, as well as the assets and liabilities of the Currency Fund established under the Seychelles Currency Act, 1974 were transferred to the Authority.

The SMA functioned very much like a Central Bank. The 1978 Decree empowered it with the necessary tools to enable it to achieve its objectives. These included (but were not limited to) the issue of currency, the management of external reserves, banker and lender of last resort to government and commercial banks and inspection of banks and other financial institutions. The most important difference with its predecessor was that the Authority was given the responsibility for monetary policy, thus enabling it to set monetary instruments such as interest rates and credit controls to achieve certain desired objectives. However, the 1978 Decree provided for a Board of Directors comprising of three members; one of whom was the Permanent Secretary of Finance; another being the Accountant-General; and the third being any person as may be appointed by the President. This was to ensure that the Authority consult closely the government, mainly the Department of Finance, in its capacity as Financial and Economic Advisor.

On the 40th anniversary, the central bank organised an exhibition and its Governor Ms Caroline Abel said:


Understanding Exchange Rates and Why They Are Important

December 24, 2018

Nice piece by Adam Hamilton of RBA:

Exchange rates are important to Australia’s economy because they affect trade and financial flows between Australia and other countries. They also affect how the Reserve Bank conducts monetary policy. This article outlines how exchange rates are measured, the different types of exchange rate regimes, the factors that influence the exchange rate and how changes in the exchange rate affect the economy.


The 2008 crisis: transpacific or transatlantic (savings glut or European Banking glut?)

December 24, 2018

Nice paper by Robert N McCauley of BIS.

There are two broad hypothesis which are responsible for the 2008 crisis: Savings glut of Asian economies or Banking glut of European economies:

This study analyses two hypotheses that ascribe the 2008 US financial crisis to capital inflows.

The Asian savings glut hypothesis posits that net inflows into high-grade US public bonds from countries running current account surpluses led to the housing boom and bust. An excess of savings over investment abroad led to an excess of US investment over savings.

The European banking glut hypothesis holds that gross inflows into private bonds led to the boom. Leveraging-up by European banks enabled the leveraging-up of US households.

They show the European story fits the data and trends better than Asian story. Hence, more of a European banking problem:

Gross flows from Europe better matched US mortgage market trends towards private credit risk, floating interest rates and narrow spreads. What is more, European banks produced, not just invested in, US mortgage-backed securities. Their US securities affiliates held huge exposures to such securities that deserve recognition. Furthermore, European banks’ leveraging-up also provided credit that enabled housing booms in Ireland and Spain. These findings favour the European banking glut hypothesis.


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