Archive for the ‘Financial Markets/ Finance’ Category

From revered to reviled: a historian’s view of Lebanon’s banking sector

June 16, 2020

Lebanon’s banking system is literally on fire. The economic and currency crisis has led to protesters setting the central bank and bank branches on fire.

Prof Hicham Safieddine at King’s College London wrote a book on history of Lebanon monetary/banking system.

In 1943, Lebanon gained its formal political independence from France; only after two more decades did the country finally establish a national central bank. Inaugurated on April 1, 1964, the Banque du Liban (BDL) was billed by Lebanese authorities as the nation’s primary symbol of economic sovereignty and as the last step towards full independence. In the local press, it was described as a means of projecting state power and enhancing national pride. Yet the history of its founding—stretching from its Ottoman origins in mid-nineteenth century up until the mid-twentieth—tells a different, more complex story.

Banking on the State reveals how the financial foundations of Lebanon were shaped by the history of the standardization of economic practices and financial regimes within the decolonizing world. The system of central banking that emerged was the product of a complex interaction of war, economic policies, international financial regimes, post-colonial state-building, global currents of technocratic knowledge, and private business interests. It served rather than challenged the interests of an oligarchy of local bankers. As Hicham Safieddine shows, the set of arrangements that governed the central bank thus was dictated by dynamics of political power and financial profit more than market forces, national interest or economic sovereignty.

Here is an interview of Prof Saffiedine:

Why was there little to no criticism of the Banque du Liban and banking sector in the Lebanese media until after outbreak of the crisis?

After the end of the civil war (1975-1990), the BDL emerged as the most stable state institution. Its longtime governor Riad Salameh helped stabilise the Lebanese exchange rate and eventually pegged the Lebanese pound to the dollar while portraying it as the hallmark of stability. Many Lebanese, weary of the war years of instability, readily bought into this portrayal.

Salameh further impressed himself on the national imagination when he managed to stave off any capital flight from Lebanon during the 2008-2009 financial crisis. His apparent diligence stood in sharp contrast to the bickering and corrupt sectarian leaders. All this while, however, Salameh oversaw the financing of the largest government debt in the country’s history. Much of this debt was held by local private banks in return for exorbitant interest rates that generated astronomical profits.

Over time, this symbiotic relationship between the BDL and the private banking sector, under the auspices of the Association of Banks in Lebanon (ABL), reinforced the untouchable stature of banks. They put their easily earned money to work by investing in public relations campaigns on billboards, TV ads, and even newspaper supplements, to polish their image. As long as the long-term structural instability was hidden – thanks to BDL accounting tactics and inflow of money from abroad – mainstream media parroted the bankers’ narrative and turned a blind eye to underlying instability waiting to explode. When it did, some media outlets threw down the gauntlet while others continued to rally behind the banking oligarch.

Here is another older interview of the author.

Jadaliyya (J):  What made you write this book?

Hicham Safieddine (HS): I was researching the role of Palestinian entrepreneurs in the Lebanese economy when I read in passing that Lebanon’s central bank was founded in 1964. That is a full two decades after the country’s official independence from France. This rarely mentioned fact about Lebanon led me to look into the story of Banque du Liban. I soon gained an appreciation of how pivotal central banks were and remain to national statehood and how little literature there is on the subject in relation to Arab countries. The case of Lebanon was all the more poignant given the conventional history of its laissez-faire economy with its assumption of a weak state. The research evolved into an in-depth study of Lebanon’s financial foundations, stretching from late Ottoman times to the outbreak of the civil war in 1975, with a focus on the post-WWII period. I relied on an array of untapped archival sources (diplomatic cables, newspapers, banking histories, expert studies) in the United States, France, and Lebanon to reconstruct what happened, why it happened, and how it speaks to broader themes of political economy, state formation, and financial sovereignty in the region and beyond.

I reverse the direction of inquiry and examine how market forces and private actors shaped the state.

J:  What particular topics, issues, and literatures does the book address?

HS: Banking on the State intervenes in several literatures in three major ways. Firstly, it sheds light on the creation of financial institutions as part of building states and markets during the age of independence. The emergence of central banking in previously colonized regions remains under-theorized. In the Arab region, recent and valuable studies of colonizing projects cover the realm of education, military, law, civic space, and later the economy. The sphere of finance, which I tackle in this book, has rarely served as a primary object of investigation, and the few studies available do not extend to the post-independence period.

Secondly, the book moves beyond the fetishized use of sectarianism as a primary framework for understanding Lebanon. It equally builds on, and at times challenges, recent studies of Lebanon’s political economy that do not themselves dwell on sectarian tropes but are largely concerned with illustrating the open economy nature of Lebanon by showing how the Lebanese state, in the first decade after independence, shaped the market through polices of deregulation. I reverse the direction of inquiry and examine how market forces and private actors shaped the state. I center the role of bankers and financial experts, rather than sectarian leaders, in the construction of state institutions and by extension, national money markets. I emphasize these business actors’ political rather than purely economic machinations to maintain their hold on the economy amid a shift from French to US financial hegemony.

Thirdly, the book speaks to the global history of modern economic thought. In addition to bankers, I detail the role of a group of Arab economists at the American University of Beirut, like Said Himadeh and Salim Hoss, in the creation and circulation of ideas about reforming central banking. I show how they were influenced by, and transformed, contemporary global visions of economic development.

Should be a terrific read.

How Riskbank (central banks) create money in times of crisis?

June 16, 2020

Hanna Armelius, Carl Andreas Claussen and David Vestin in this Riksbank research:

Central banks around the world have implemented extensive measures to alleviate the effects of the corona pandemic on the economy. Many of the measures involve creating large volumes of new money. But how is money created and who ends up holding it? In this commentary, we explain how money is created and destroyed in the current financial system, what roles the banks and the Riksbank have and how different course of action by the banks and the Riksbank influence the amount of money. At the end of the commentary, we use
examples from the Riksbank’s crisis measures to illustrate how monetary policy influences the economy and the amount of money.

Not very different from how the Riskbank would create money in normal times as well. Just that this crisis demands more action.

Six centuries of central bank independence

June 16, 2020

Ulrich Bindseil of European Central Bank writes on the long history of central bank independence:

The economic and financial crises of the last 12 years have led to large-scale unconventional central bank measures and renewed discussions on central bank independence, culminating in the 2018 publication of Paul Tucker’s Unelected Power. The same year, the Economist noted that, ‘Operational independence for central banks is relatively new. The principle grew out of work in the late 1970s and early 1980s by prominent economists working in the “rational expectations” school of economic thought, among them Finn Kydland and Edward Prescott, who were eventually awarded the Nobel prize.’

The true story of central bank independence is much older and less academic than what the Economist and others assume.

Central banking from the 15th century until the end of the Bretton Woods era in 1973 meant in essence issuing fully convertible monetary liabilities, i.e. liabilities with overnight maturity that would be redeemable into precious metal. Monetary stability therefore required unconditional trust in central banks’ ability to remain liquid and solvent. Any substantial recourse of a financially stressed government to central bank resources could undermine this, jeopardising the central bank’s ability to deliver on its convertibility promise. The rational anticipation of this problem – when unsolved –prevented the establishment of successful central banks in various countries until the late 19th century, despite many attempts. Frederic the Great of Prussia, who took a personal interest in the establishment of a Prussian central bank, failed no less than four times to establish one. All attempts in the Kingdoms of Spain and France failed for centuries because none of the imagined schemes could establish ex ante credibility. Credibility required a sufficient combination of central bank independence and the rule of law.

Top 100 economics blogs of 2020

June 16, 2020

Intelligent Economist has released its 2020 list of top 100 blogs.

Welcome, and thank you for joining us for the 5th annual Top Economics Blogs list! We are happy, once again, to introduce you to a freshly updated list of economics blogs for 2020. As always, our winners list provides blogs for many different audiences, ranging from the budding economic enthusiast to the seasoned academic. The list also covers a variety of economics topics, whether it be traditional economic theory or the application of economics to current events and issues. In this meticulously curated list, we’ve condensed the most unique elements of each blog into short descriptions, so that you can see which ones catch your eye.

For 2020, a few newcomers have emerged, while many mainstays from 2019 and years before are present as well. Like previous years, we’ve done our best to capture the blogs which stand out for their quality rather than their popularity. As such, the list is an eclectic group that represents a wide range of tastes and perspectives. Regardless of your school of thought or political affiliation, you can find valuable new content in this list of engaging, high-quality economics blogs.

Blogs Added in 2020:

    • Critical Macro Finance
    • The Demand Side
    • Byte Size Story
    • The one-handed economist
    • the Blog Papers of Dr. Michael Sakbani

Special Mention: Over the past year, two Economics bloggers have retired – Professor Dave Giles of Econometrics Beat and Professor Mark Thoma of Economist’s View.

So, without further ado, here are our top 100 economics blogs for 2020, in no particular order.

It is great to see Mostly Economics continue to be a part of the list.  Thanks to all the visitors and well-wishers of this blog.

Jumpstarting an international currency: Case of Chinese Renminbi

June 12, 2020

Interesting Bank of England WP by Saleem Bahaj and Ricardo Reis:

This paper suggested that international currency status depends on the financial cost of working capital credit, and that this is affected by central bank policies. A model of the complementarity between the currency choice for credit and the currency choice for invoicing revealed thresholds for key economic variables that a rising currency must meet before it becomes used overseas. Most currencies do not meet these thresholds, justifying why so few are international. But for some, policy can shift the thresholds and so jumpstart the currency. Empirically, we used the RMB swap lines to test for the effects of policy, and for the role of these thresholds and complementarities. We estimated a 13 percentage point increase in the probability of a country making or receiving RMB payments as a result of the swap lines, and an increase in the RMB share of payments of 0.4 percentage points.

Drawing the comparison with the similar actions of the Federal Reserve one century ago, the RMB is today much less used than the USD was back in 1925. In part, perhaps this is because the RMB capital markets continue to be subject to many controls. Moreover, there was no shock threatening the USD in the last decade the way that World War I closed the GBP market. The experience of the USD suggests that Chinese policymakers can do much more if they want the RMB to rise further.

Our goal was positive rather than normative. Whether the swap lines were the best tool to trigger the jumpstart, and whether the costs of policies do not outweigh the benefits of having an international currency, are questions that we did not ask or answer. Neither did we address whether the central bank is the right agent to be pursuing this promotion, how should it interact with fiscal authorities, and what are the implications for the exchange rate regime and capital flows. These are all left for future work. 

 

Preventing run on debt mutual funds in India..

June 11, 2020

Yaswant Bitra, Manish Meena and Anubhav Agarwal of RBI in  this June-2020 MB article reflect on the recent closure of FT India debt mutual funds.

They propose that with rise in AUMs, the share of government securities in the funds should increase.

Vulnerabilities of the open-ended debt mutual fund model in India get accentuated by the shallow secondary corporate debt markets. After the recent
instance of suspension of withdrawal from a specific scheme of an AMC, the Reserve Bank of India had stepped in with a Special Liquidity Facility for Mutual
funds amounting to `50,000 crore to address the possible spillovers to other parts of the financial market and to safeguard financial stability. This
decision has helped to reduce the liquidity stress and restore confidence in the financial markets.

Sound policy frameworks should be supported by credible and effective financial safety nets, reinforced by short-term liquidity support from central banks.
However, any amount of liquidity support cannot address solvency issues, weaknesses in investment design and incentives thereof for fund managers, and
a widespread risk aversion.

Offering Mutual Fund units repayable on demand where the net asset value (NAV) impact is passed through to the investor is akin to offering deposits
repayable on demand as in banks but without the cushion of high quality liquid assets (HQLAs)/ reserve requirements / lender of last resort and hence
amounts to significant regulatory advantage. The issue is particularly relevant for jurisdictions where the investor base is narrow/concentrated and secondary
debt markets are illiquid. 

Given the issues of incentive compatibility through bail-out mechanisms and attendant moral hazard issues brought in by size, there is clearly a
need to balance the growth in AUM with additional liquidity buffers to moderate risk and spillovers. One particular way to address the same may be through
stipulating that the ratio of government securities in incremental holding should increase as the size of a debt scheme increases.

From Great Lockdown to Great Transformation

June 10, 2020

Kristalina Georgieva of IMF in this speech:

It is wonderful to have the chance to talk to your global audience, because we know U.S. companies play a huge role all over the world.

The IMF and the U.S. Chamber of Commerce have been partners for decades, and we are united in our support for the simple concept that private sector-led growth improves opportunities for people everywhere.

At the Fund, our focus has been on the macroeconomic policies that underpin this. And we have stepped up several times during crises to help steer the recovery so countries can return to growth and create jobs.

As you may know, I spent a big chunk of my life living in a non-market economy—I was born and educated in Bulgaria during the time of communism.

I can tell you—there is no stronger advocate for markets than a person who has lived in the highly distorted environment of a non-market system. I learned firsthand the cost of bad policies, and the benefits of good policies. In fact, it was partly due to the IMF that Bulgaria turned a corner in the 1990s and was able to participate in both the European Union and the world economy.

What does it tell us that somebody who came from a Communist system now leads the IMF and is invited to address the U.S. Chamber of Commerce? Put simply, it tells us that change for the better is unstoppable.

So, let me concentrate my opening remarks on three points. First, what we have learned about this highly unusual crisis? Second, how do we envisage the pathway to recovery? And third, what is the role of the IMF in this crisis?

Starting with the crisis, let us look at some simple facts.

She highlights three opportunities:

Let me turn to the opportunities we see, starting with the digital transformation—a big winner from this crisis.

Clearly, many organizations are not going back to the old ways of working we knew before the pandemic.

We have seen that we can telecommute effectively. We know that we can organize work more flexibly and accommodate our staff’s conditions and preferences. So, we are going to see a rapid modernization in how we operate.

And we will also see a tremendous expansion of e-commerce, e-learning, e-transfers, e-payments, and e-governance. E-governance is particularly important, and at the IMF we would like to see more transparency and accountability in governance as well as in the way the economy functions.

So, it is critical to make sure that we avoid a great divide in which access to digital skills and infrastructure is limited for some and unlimited for others.

For example, currently only 50 percent of African businesses and citizens have access to the Internet. If this doesn’t change, we will miss a big opportunity and deepen inequality within countries and across countries, including here in the United States.

The second huge opportunity is going green.

I have been telling people that if you don’t like the pandemic, you’re not going to like the way climate change will hit us with increasing strength in the future.

The great thing about the green economy is that it can offer job opportunities. For example, in insulating buildings, in reforestation, or in planting mangroves. Low carbon energy and infrastructure can also be a big booster for jobs.

At the Fund, we are very interested in providing incentives for countries and companies to move faster in this direction, including by being clear around the risks to businesses during the transition to a low carbon economy.

The third opportunity is building fairer societies.

The good thing is that there are policies that are both good for growth and good for addressing inequality.

For example, combining social safety nets with social safety ropes that give people a chance to succeed and pull themselves up. And that applies particularly to small and medium-sized businesses.

The bad news is that inequality tends to go up after a pandemic. So, we must put this squarely on our radar screen and recognize the importance of global trade in contributing to lower costs, higher incomes and lower levels of poverty.

There would be a natural tendency after this pandemic for countries to turn inwards to build health security and build more independent operations. But we must guard against a dramatic retreat from globalization.

 

Focus on bottlenecks and not moral hazard

June 8, 2020

Prof Charles Wyplosz of Graduate Institute Geneva in this voxeu piece:

Governments should be very careful not to undermine the resumption of growth as they feel the urge to wind down the deficits that they opened up during the crisis. The now-classic example is the euro area’s double dip after the Great Recession. Suspending the budget constraint, even for good reason, creates a moral hazard. The response is not premature austerity, nor is it ever lasting laxity. Finding the right balance will be challenging.

The euro area faces a number of specific challenges. We hear many calls for coordination. There is no doubt that some coordination would help, but not in every dimension. Targeted fiscal measures, which imply transfers to erase the bottlenecks, are ill-suited for coordination. Most measures must target well-identified bottlenecks. In the absence of a fiscal union, providing support to firms and households is a national competence for the obvious reason that it is financed by national taxpayers. In addition, these targets are probably better understood and more effectively dealt with at the local level. However, there is a risk that some governments cannot borrow what they need because they are already overindebted. Given the amounts likely to be required, the risk of another debt crisis is serious because, as we now know, the euro is a foreign currency because member countries do not own their central bank, the ECB. This is where coordination is required. 

One solution would be a mutual guarantee for new national borrowings. An alternative is that the borrowing be undertaken collectively through jointly issued Eurobonds. This is a function that could be entrusted to the European Stability Mechanism (ESM), but its resources (3.5% of GDP) are too limited, the conditions too drastic and the decision-making process, which requires unanimity, too inefficient.

Unfortunately, both mutual guarantees and Eurobonds have been rejected repeatedly in the recent past because of moral hazard considerations. Indeed, countries that managed to attain low public indebtedness are unwilling to protect those that did not. Under the current exceptional circumstances, it would make sense to set the moral hazard concern aside but, given the urgency of the situation, it seems unlikely that an agreement can be worked out after so many years of heated discussions.

 

Central banking jobs for near future: Climate economists and money futurists

June 8, 2020

My new piece in MC.

The article discusses these two recent announcements, one by Denmark Central Bank and other by RBNZ. Denmark central bank invited application from climate economists (link not available anymore) and RBNZ for a money futurist.

Most central banks will need both these jobs and really soon.  RBI should act and try recruit such profiles right away.

Can digitalization help deter corruption in Africa?

June 5, 2020

New IMF WP by Rasmane Ouedraogo and Amadou N.R. Sy

This paper studies the effect of digitalization on the perception of corruption and trust in tax officials in Africa. Using individual-level data from Afrobarometer surveys and several indices of digitalization, we find that an increase in digital adoption is associated with a reduction in the perception of corruption and an increase in trust in tax officials. Exploiting the exogeneous deployment of submarine cables at the local level, the paper provides evidence of a negative impact of the use of Internet on the perception of corruption. Yet, the paper shows that the dampening effect of digitalization on corruption is hindered in countries where the government has a pattern of intentionally shutting down the Internet, while countries that successfully promote information and communication technology (ICT) enjoy a more amplified effect.

Wait for humans to figure creating corruption even in stable and regular digital environments.

Constitutionalist central banking in a world of inert politics..

June 4, 2020

Paul Tucker, author of “Unelected Power” writes in IMF’s F&D Magazine:

Let’s briefly take a step back to the world of 2018–19. Politicians were attacking central bank monetary policy and bank supervision across the world: from the US, via Italy and Turkey, to India. Powerful private sector actors wanted central banks to buy equities from them whenever the next recession arrived. And technocrats themselves were embracing think tank calls to steer the supply of credit to tackle climate change, inequality, productivity growth and other pressing social problems, even while some were hauled up for intervening in politics and so departing from their mission.

Around the world, the political left was calling for “People’s Quantitative Easing”; libertarians sought salvation in privately issued cryptocurrencies; and the conspiratorialist fringe persisted in seeing monetary officials as in league with enemies of the people.

Whether you cheer or choke on that, it was obvious, even before COVID-19, that something was going on in the once-sober world of central banking. Being the only game in town was turning out to be a political, even constitutional, nightmare.

And then came COVID-19, returning central banking to the kind of role it played when, from the 1930s to the 1980s, it was merely an instrument for finance ministries. In some jurisdictions (notably the US and euro area), the central bank has in effect been standing in for governments which cannot act decisively or promptly, risking becoming the de facto fiscal authority. In others (perhaps the UK), the central bank will finance executive government, possibly without a framework that ensures an exit route, and risking releasing executive government from the constraints of the elected assembly.

He says there are 2 models of central banking. Central banks as provider of club goods or central banks as provider of common and public goods.

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Social Stock Exchange: Listing of social enterprise and voluntary organizations

June 3, 2020

FM Nirmala Sitharaman had proposed setting up a social stock exchange for enabling social enterprises raise funds.

SEBI had formed a committee to study the proposal. The committee has submitted the report.

Social Stock Exchange is a novel concept in India. The working group had a series of consultation with various stakeholders including voluntary organizations, social enterprises and philanthropic organizations in order to assess the difficulties faced by them in raising funds/ donating funds. Some of the key recommendations are as follows:
    • Non-profit organizations can directly list on SSE through issuance of bonds.
    • A range of funding mechanisms have been recommended including some of the existing mechanisms such as Social Venture Funds (SVFs) under the Alternative Investment Funds. 
    • A new minimum reporting standard has been proposed for organizations which would raise funds under SSE.
    • For- profit social enterprises can also list on SSE with enhanced reporting requirements.
    • To encourage “giving” culture, some tax incentives have also been recommended.

Looks interesting. Should read the report..

 

Climate change and pandemics pose similar risks: White Swans, Black Swans, Green Swans

June 3, 2020

Interesting and important paper/speech by Luiz Awazu Pereira da Silva of BIS.

The paper builds on an earlier BIS paper on greenswan. It warns just like the pandemic risk has taken us for a ride, we could do the same with climate risks as well. He also brings the discussion on the white, black and green swans:

This paper elaborates on The green swan – Central banking and financial stability in the age of climate change, an e-book published by the BIS and the Banque de France. It discusses how to deal with global risks such as climate-related risks, as manifested in more frequent and more destructive weather catastrophes, which pose a growing threat to financial stability.

It suggests that climate-related risks and pandemics such as Covid-19 have similarities. Both are massive global negative externalities and both are related to changes in our natural ecosystems. In addition to the extensive economic and financial damage they both produce, both directly affect human lives and thus could be classified as Green Swans. And, for both, there is a discrepancy between how scientists warn us about the quasi-certainty of their occurrence and how we fail to systematically consider their potentially huge costs and integrate them into risk frameworks and final prices.

Due to the global nature of these risks, the paper advocates more global coordination and local cooperation to prevent them, which will require changes in risk models and mindsets in many directions and by many agents (central banks, governments, civil society, the private sector etc). Since these global risks threaten financial stability, the current mandate of central banks has an important role to play, which has led to their timely and encompassing response. But no single actor has a silver bullet to solve this type of crisis. So, what lessons should we draw from the current crisis to better prepare our socio-economic organisation?

The major issue is the cost of prevention and of insuring ourselves, in order to reduce these risks and better price them. Importantly, the unprecedented loss of global welfare associated with Covid-19 this year, coming along with growing social awareness of climate-related risks in the last few years, might have led to a tipping-point for social behaviour, by convincing people that it is best to pay for some form of insurance against these global risks. More generally, the effects of global risks such as pandemics illustrate the trade-off between the efficiency and resilience of our production systems. Insurance is a small price to pay (locally and globally) for greater sustainability and resilience.

Finally, many policymakers are advocating a “green recovery”, learning from the crisis but also recognising the challenges. In that light, there are many practical suggestions for, inter alia, massive but selective public investments that might contribute delivering a timely, more sustainable, “green recovery” with a lower carbon footprint, mitigating or at least not aggravating the risks of new Green Swans.4

How JP Morgan’s history is connected to epidemic/pandemic..

June 3, 2020

Museum of American Finance runs a superb publication named Financial History. It is published three times an year.

The recent issue (Spring 2020) focuses on what else but pandemics. It has an article by Maura Ferguson and Sarah Poole titled Dirty Water. The article tracks a long winding history of epidemics in NY with JP Morgan Chase Bank.

The story narrates the history of this firm named Manhattan Company which was established to clean water of NY City.

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Are equity markets underestimating climate risks?

June 1, 2020

IMF in Global Financial Stability Report (Apr-2020) has a chapter on equity markets underestimating climate change risks:

The projected increase in the frequency and severity of disasters due to climate change is a potential threat to financial stability. Equity markets are a key segment of the global financial system, provide a data-rich environment, and are sensitive to long-term risks, making them fertile ground for investigating how projected future physical risk affects financial markets and institutions.

Looking back over the past 50 years shows a generally modest impact of large disasters on equity markets, bank stocks, and non–life insurance stocks, although country characteristics matter. Higher insurance penetration and greater sovereign financial strength have helped dampen the adverse effects of large disasters on equity markets and financial institutions.

While projections of climatic variables and their economic impact are subject to a high degree of uncertainty, aggregate equity valuations as of 2019 do not appear to reflect the predicted changes in physical risk under various climate change scenarios.

This suggests that equity investors may not be paying sufficient attention to climate change risks. Beyond policy measures to mitigate and adapt to climate change, actions to enhance insurance penetration and strengthen sovereign financial health will be instrumental in reducing the adverse effects of climatic disasters on financial stability. Moreover, better measurement and disclosure of exposures to climatic disasters are needed to facilitate the pricing of climate-change-related physical risks.

IMF has a Blog post on the chapter:

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Pandemic central banking: the monetary stance, market stabilisation and liquidity

May 29, 2020

Philip Lane, chief economist and Board Member ECB in this speech reviews ECB’s policy during the crisis.

In my recent blog post, I described the range of scenarios that have been developed by ECB staff to support the analysis of the near-term and medium-term macroeconomic dynamics in the context of the coronavirus (COVID-19) crisis.[1],[2] I also explained the current monetary policy of the ECB and outlined our approach to setting the future course of monetary policy. My remarks today aim to reinforce these points by presenting some additional empirical evidence.

Lots of graphs and data in the speech. One could just use similar data for other countries to evaluate macro trends and policy responses.

Webinar on 30 May 2020: The Science and Economics of Climate Change

May 28, 2020

Ahmedabad University is organising a webinar on ‘The Science and Economics of Climate Change’. I will be conversing with Minal Pathak who is Scientist at Intergovernmental Panel on Climate Change (IPCC) and runs the Global Centre for Environment and Energy at Ahmedabad University.

Interested folks especially students can register here.

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COVID-19 and non-performing loans: lessons from past crises

May 27, 2020

Anil Ari, Sophia Chen, and Lev Ratnovski of ECB in this research look at NPL story.

During crises, the number of loans that cannot be paid back increases. What are the lessons from past crises for non-performing loan resolution after COVID-19? In this article we use a new database covering non-performing loans (NPLs) in 88 banking crises since 1990 to find out. The data show that dealing with NPLs is critical to economic recovery.

Compared with the 2008 crisis, some factors are conducive to NPL resolution this time: banks have higher capital, the forward-looking IFRS 9 accounting standards can help NPL recognition, and the COVID-19 crisis was not preceded by a credit boom. However, other factors could make NPL resolution more challenging: government debt is substantially higher, banks are less profitable, and corporate balance sheets are often weak.

 

History of Repo markets in US..

May 27, 2020

I wrote a piece in BQ looking at evolution of Repo markets in India.

John Mullin writes on repo markets in US.

What led to rise of Repo market? In 1970s as inflation rose deposit rates could not rise due to regulatory caps. This is much like India where interbank repo markets developed as call rates were capped.

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Trade and travel in the time of epidemics

May 26, 2020

Hans-Joachim Voth in this voxeu piece says we need to think about trade and travel differently for goods and people.

Goods carry little diseases whereas people do:

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