Archive for the ‘Speech / Interviews’ Category

Peeling the Inflation Onion

December 1, 2022

John C. Williams, President and Chief Executive Officer of NY Fed in this speech breaks down inflation as peeing the onion:

There are many sources of high inflation, and they are not unique to the United States. In fact, nearly all economies across the globe are experiencing unusually high rates of inflation. To better understand the root of high inflation and what it means for the future, I will start to peel the “inflation onion” that I mentioned earlier.

In this allium analogy, there are three distinct layers. The outermost layer consists of prices of globally traded commodities—such as lumber, steel, grains, and oil. When the global economy rebounded from the pandemic recession, there was a surge in demand for these critical goods, leading to sizable imbalances between supply and demand and large price increases. Then, energy and many commodity prices soared again as a result of Russia’s war on Ukraine and consequent actions. Skyrocketing commodity prices led to higher costs for producers, which in turn got passed on as higher prices for consumers.

The middle layer of the inflation onion is made up of products—especially durable goods like appliances, furniture, and cars—that have experienced both strong demand and severe supply-chain disruptions. There were not enough inputs to manufacture products, which meant not enough products to sell—all at a time when demand has been sky-high. This imbalance contributed to outsize price increases.

If we continue paring the onion, we’ll reach the innermost layer: underlying inflation. This layer is the most challenging of the three, reflecting the overall balance between supply and demand in the economy and the labor market. Prices for services have been rising at a fast clip. Measures of the cost of shelter, in particular, have increased briskly, as an earlier surge of rents for new leases filtered through the market. And widespread labor shortages have led to higher labor costs. And this is not limited to a few sectors—inflation pressures have become broad-based.

How does onion inflation look today?

When examining where all these inflationary layers stand today, we are seeing a multilayered reality. So, what can we expect to see in the future?

I’ll start with the outer layer, where there have been positive developments that point to some relief on this front. The prices of commodities have come way down from peaks reached earlier this year. Absent further disruptions to supply, I expect that slowing global growth, in part reflecting tighter monetary policy here and abroad, will continue to reduce demand for these products, putting downward pressure on their prices.

Core goods prices that make up the middle layer have yet to come down from elevated levels, as demand continues to outstrip supply. But there are signs that this is changing.

For one, we’ve seen significant improvement in global supply chains. Unlike last year, there are no longer ships stalled at ports in California. The Global Supply Chain Pressure Index, developed by economists at the New York Fed, shows that global supply chain disruptions soared to unprecedented levels late last year. Since then, this index has retraced about three quarters of that rise, and I expect improvements in global supply chains to continue.4

We have also seen wholesale used auto prices decline by more than 15 percent since the start of the year, and these decreases are starting to pass through to consumer prices. New auto inventories are slowly edging back up, which should in turn bring relief to new car prices. Overall, the combination of waning global demand, improving supply, and falling import prices from the strong dollar points to slowing core goods inflation going forward.

However, lower commodity prices and receding supply-chain issues will not be enough to get inflation back to our 2 percent inflation goal—it’s the innermost layer where the hard work lies. Overall demand for labor and services still far exceeds available supply, resulting in broad-based inflation, which will take longer to bring back down.

That said, a few forward-looking indicators paint a more encouraging picture. Growth in rents for new leases has slowed sharply recently, implying that average rent growth and housing shelter price inflation should turn back down. We’re also seeing some signs that the heat of the labor market is starting to cool, with quits and job openings declining from the high levels of the spring, along with indicators of slowing wage growth

Interesting way to explain.


Thirteen days in October: how central bank balance sheets can support monetary and financial stability

November 7, 2022

Andrew Hauser of Bank of England explains the 13 tumultous days faced by uk economy and its policymakers in october 2022.

My original plan for this speech, back in early September, had been to talk through the Bank of England’s plans for accelerating its unwind of Quantitative Easing (QE) by selling  government bonds. That story can still be told – because QE sales began, successfully, on 1 November.

But the tale also has a surprise new chapter – a programme of temporary and targeted asset purchases that ran for 13 days between 28 September and 14 October, aimed at heading off a clear and present threat to financial stability.

Switching so rapidly from planned sales, to purchases, and back to sales again might  appear to some to imply a confusing or contradictory policy stance. But I want to show today how, through a combination of operational choices – clear communications, robust tool design, and following through on pre-commitments – it is possible to use the central bank balance sheet to support both monetary and financial stability, in ways that reinforce and complement, rather than undermine, either goal.1

In my remaining remarks I will first describe the events that triggered our extraordinary intervention, and the ways in which we designed that intervention to maintain clear separation from the monetary stance – drawing on national and international thinking that has been underway since the 2020 ‘dash for cash’.

I will then explain why we have returned to asset sales in support of monetary stability, and how those operations in turn have been designed to minimise the risks of triggering renewed dysfunction. 

Finally, I will conclude by identifying some possible lessons and next steps.

Central bank digital currency: what has bank of Korea learned from a recent hands-on experiment

October 28, 2022

Chang Yong Rhee, Governor of the Bank of Korea, in this speech discusses a recent hands-on experiment on cbdcs in South Korea.

Bank of Korea has recently completed its first experiment which lasted for ten months on a retail CBDC based on distributed ledger technology (DLT). We are now working on a follow-up experiment linking our test system to those of commercial banks and also reviewing additional design options for a CBDC. We have learned a lot during the hands-on experiment and I would like to share four lessons  from it with you today.

First, introducing a CBDC involves not just developing technology but also a process of balancing trade-offs between various goals.

Second, developing a successful CBDC is much more complex than anticipated.

Third, it may never be too early to establish effective private-public partnerships for CBDCs.

Lastly, further exploration of wholesale CBDCs is essential.


Central banking in the Anthropocene: How to re-embed our economic and financial systems within planetary boundaries?

October 28, 2022

Sylvie Goulard, Deputy Governor of the Banque de France in this speech:

What should we do, then, to re-embed economic and financial systems within our planetary boundaries? While I do not pretend to have the answer to such a question, let me open up a few avenues.

As central banks and supervisors concerned primarily with price and financial stability, the first thing we can do is delve further into the assessment of financial risks, while being aware of the limitations of such an exercise because of the points I raised earlier. But perhaps we could at least be informed by some of the issues I discussed, and be willing to explore new frontiers. For instance:

    • How could we design scenarios that account for what IPBES experts are telling us, for instance with regards to the different values of nature, the rights of indigenous people and the need to think comprehensively about economic, social and environmental inequalities?
    • How much can the global economy grow while accounting for all planetary boundaries? And how to distribute this “remaining growth potential” between rich and developing countries, as a fair transition is key?
    • What could be the impacts of lower growth rates or potential no growth on global value chains, on employment, on different economic sectors that could win or lose from the transition?
    • Which assumptions do we make about demographic trends? I actually greatly appreciated that in his review Professor Dasgupta mentioned demography. I am aware that this is a delicate issue but it has several ecological and macroeconomic implications and we should be able to assess them.
    • How should we tackle climate change and biodiversity, taking into account the complexity of each of both issues but also their interaction?  

If you think that this is too political for central bankers, let me strongly oppose this view: what would be too political is to deny all the evidence gathered by

natural and social scientists for the past decades.

Just one year ago, before the war, it would have been unlikely to think about potential energy constraints linked with a hybrid war. I wish more people had dared to work on disruptions of energy supply (or global value chains) a few years ago.

Likewise, the latest report of the Working Group III of the IPCC (dedicated to climate mitigation) contains a chapter (#5) that places great emphasis on the need for sufficiency and behavioral changes, and it discusses the literature exploring how we could thrive as societies and individuals without depending so much on GDP growth. Professor Dasgupta also invites us not only to acknowledge that GDP growth will be limited at some point even if you are a techno-optimist, but also to think about new approaches to economic value and social well-being that do not rely on GDP.

All this begs us, and especially the young scholars present today, to ask what will be essential in 5 to 10 years from now.

Evolution of Indian financial system

October 25, 2022

First of all, wishing all the visitors and well wishers a very happy diwali.

Shri M. Rajeshwar Rao, Deputy Governor, Reserve Bank of India in this speech traces evolution of financial system:

Since independence, our country has taken giant strides in growth and development in all sectors. The GDP of India rose from a meagre Rs. 5 lakh crore (1950-51) to about 147 lakh crore (2020-21) at constant prices of 2011-12, growing about 27 times with a CAGR of about 4.8 per cent. But in the shadow of this growth story lies a duality which attracts the attention of every policymaker and concerned citizens. Even as the GDP has grown 27-fold in last seven decades, the per capita income has grown merely seven-fold from about Rs.14,000 (1950-51) to about Rs. 1 lakh (2020-21) at constant prices of 2011-12, with a CAGR of about 2.9 per cent2. This duality highlights the importance and requirement of inclusive growth of our country – a goal we all should aspire for and contribute towards in our respective professional capacities.

The evolution of the financial system, too, has been dotted with several twists and turns, reflecting the policy choices made in a given socio-economic and political context. As is generally said, policy making is not amenable to corner solutions. The outcomes more often than not lie somewhere in the hazy middle, reflecting the contextual trade-offs. In my remarks today, I intend to dwell on some of these tradeoffs, the idea being not to judge them for their existence, or to contemplate about their counterfactuals but just to bring forth the specific structural paths our financial system has journeyed over the course of last seven decades whilst bolstering the ever-evolving Indian growth story.

I will therefore briefly touch upon some of such structural and regulatory dualities of Indian financial system which are integral to addressing some of the key questions that I highlight, while venturing with a few thoughts of my own on the way ahead.

He touches on 4 themes:

II. Bank-led vs market-led financial intermediation in India  Is it possible to envision a transition from a bank-dominated financial system to a non-bank intermediation channel?

III. Ownership – Public vs Private Does there exist a middle ground in the debate?

IV. Business models – Diversified vs Specialised Does the promise of niche, specialised banking still hold?

V. Innovation vs. Customer Protection

In the end:

I have tried to briefly highlight the critical dualities of Indian financial system. As mentioned earlier, I do not intend to judge any of these categories. The only intention to bring forth these dualities is to emphasize the largely organic evolution of Indian financial system in response to our growing economy and highlight that the regulatory frameworks of RBI have facilitated meeting the ever-changing needs of the country. At every juncture of growth in financial system, at every kink, there are innumerable policy choices for a regulator. The decisions we make today have the potential to shape the present and future of our economy and our nation. But sometimes, we can wonder on what could have been the counterfactual and answering such a counterfactual is difficult. But it can be most certainly stated that the depth, size, and resilience of Indian financial system owes much to such decisions in past taken at various crossroads. One may well argue that these policy choices were not necessarily pro-active but sometimes reactive as well. True! Central Bankers do not have liberty to innovate freely, we have to put our mandate and financial stability first. There have been times when we are appreciated for our prudent policies and times when we are criticised for being conservative. But let me assure you, whatever we do, we strive to do in broader public interest. Every policy stance of ours is customised to the need of our growing economy and preserving financial stability, and that remains our guiding principle.

In a conventional set-up, the banking regulation has some pre-specified toolkits which are time tested and globally adopted. Every financial crisis offers some insights to the regulators, and the toolkit is accordingly modified in response to the lessons learnt. But, with a dynamically evolving financial system, regulators do not have liberty to rely excessively on existing means because many of the potential challenges emanating from the emerging financial order are not foreseeable. Worldwide, regulators are striving to remain ahead of the curve, because they simply cannot afford to be reactive in this environment. The changes we feel to be insignificant can now grow manifold in a very short span of time posing threat to the stability of financial system. Therefore, we have to be cognisant of all the financial changes happening around and respond appropriately to such changes. As the regulatory perimeter gradually extends to uncharted domains – climate finance, regulation of digital lending, etc. some of these issues will become even more relevant.

To guide us in this transition, we have tried to fix some broad principles that make the policy stances adaptive enough to cope up with any present and future challenges, while creating enabling environment for innovations with positive externalities. At a broad level, three guiding principles that would be helpful in framing financial regulation going ahead are – principle-based, proportionate and activity-based regulations. In an uncertain business environment, it is very difficult to predict and then prescribe all possible scenarios of a financial transaction. Therefore, such complex superstructure warrants that regulator should move away from rule-based prescriptive regime to principle-based regime and the principles of regulation should always have the financial stability and interests of consumers at its core.

The second principle for present and future regulation should be a differentiated regulatory system based on size, complexity and contribution to systemic risk. Further, as the interconnectedness, scope of activities and harmonisation of financial intermediation increases, entity-based regulatory architecture may create arbitrage between different entities undertaking similar activity. Therefore, going forward, activity should form a common regulatory thought for future regulations.

How does Reserve Bank of Australia conduct its monetary policy?

October 20, 2022

Michele Bullock, Deputy Governor of Reserve Bank of Australia discusses how the central bank conducts and decides on its monetary policy:

There are two parts to our ongoing analysis. The first is understanding the current economic situation and trends. For this, we use many different data sources. Central to our analysis of domestic economic activity is data produced by the Australian Bureau of Statistics (ABS). The ABS produces high-quality data on all aspects of the Australian economy – income, production, the labour market, trade, investment, consumption, inflation and so on – which provides us with a good view on where the economy is at and the trends within it.

There is also a large variety of data produced by other public agencies and the private sector, and we use many of these partial indicators to supplement the official data. For example, we obtain data on loan commitments from the Australian Prudential Regulation Authority (APRA) as well as data that allows us to measure credit and deposits. Surveys of business and consumer sentiment, and job advertisements are also important partial indicators that we follow closely.

Over recent years, there has been an increasing availability of very timely information that has supplemented the traditional data. Many of these data sources are artefacts of the online and digital lives we all now lead. They come from both the public and the private sector. And it turns out that many of these are valuable for understanding what is going on in the economy.


The second part of our ongoing analysis of output and inflation for the monetary policy process is the outlook – that is, given what we know about the current economic conditions, what does this imply for the future? This is important because, while we know monetary policy has ‘long and variable lags’, we need to form a view about how interest rate moves now might impact the economy and inflation in the future.

The forecasting process is an amalgam of a number of things. First, we need to understand where the economy currently is, its direction of travel and any emerging trends. This process of data monitoring and analysis that I have just described is the bedrock. From here, we use a mix of formal models and judgement.

Recognising that no single model can provide us with all the answers, we draw on a variety of models to make our forecasts. For most of the key macroeconomic variables – such as consumption, inflation, wages or the unemployment rate – we have formal econometric models. Comprehensive econometric models – including the full system economic model, MARTIN – are used to underpin our forecasts, develop alternative scenarios and perform sensitivity analysis.

All this analysis and forecasting ultimately finds its way to the Board. But, before it gets there, it goes through a rigorous internal process of testing and challenge.


A Life in Development Economics and Political Economy: An interview with Jayati Ghosh

October 13, 2022

Jamie Morgan of Leeds Beckett University Business School interviews Jayati Ghosh on her journey in economics and many more things.


Macroeconomics of the 2020s: What we’ve learned, and what’s to come

September 23, 2022

Paul Beaudry, Deputy Governor of Bank of Canada in this speech reflects on lessons from macroeconomics of the 2020s.

When COVID-19 first hit, the Bank of Canada—and many other central banks—took a series of actions. Some were new and innovative in response to the situation before us. Others stemmed from the playbooks we used during other crises. This is a key approach to policy-making: we draw from past experiences to figure out what actions will best support the economy, keep inflation on target and protect the well-being of households and businesses.

Looking back now, I believe we got a lot of things right when trying to manage the economic fallout from the pandemic. But in other areas, we could have done better.

So today, with the benefit of hindsight, I want to talk about some early lessons we can draw from this episode. I’ll discuss what worked, and where we could improve our response to future downturns.1

I’ll focus specifically on three issues.

The first is how international spillovers have been shaping the macroeconomic landscape. Here I’m thinking about how countries responded to and are recovering from the pandemic, and how policy-makers’ actions in individual countries affected global outcomes. And I’ll emphasize how cross-country interactions played out differently during the pandemic than they did in other recessions, such as the one that followed the 2008–09 global financial crisis (GFC).

Second, I’d like to compare the strong rebound that we’ve seen in the labour market with the jobless recoveries that advanced economies sometimes experienced in the past. Here I’ll stress how these differences partly reflect the way policy shaped the evolution of public and private sector balance sheets.

Finally, I’ll look ahead to an issue on so many minds these days: inflation. Just this morning new numbers were released. In August, inflation stood at 7%. While we’re headed in the right direction, that’s still too high. Consumers and businesses are rightfully wondering when we’ll stop feeling the pinch of high prices. And so I’ll talk about the role that expectations play in driving inflation, how central banks try to influence those expectations and what this means for the Bank of Canada as we guide inflation back to our 2% target.

He says the response to the pandemic shock was driven by the 2008 crisis. both the shocks were different:

A distinctive feature of the GFC was that many sectors and countries were left facing levels of demand well below available supply, and for extended periods of time. This excess capacity meant that price pressures associated with stimulus measures were modest. The inflation dimension was therefore a relatively small part of the overall story during this period.

The COVID-19 crisis was clearly very different. Even when countries were experiencing excess supply overall, key sectors were operating at or near capacity limits, including many sectors that rely on internationally traded goods. Bottlenecks occurred in these sectors because of demand surges driven by a combination of stimulus policies, shutdowns and re-openings as well as by consumers shifting away from services.

We should have withdrawn the stimulus faster this time aorund:

Normally when demand goes up following a recession, supply responds strongly. But during the pandemic, supply couldn’t keep up because of public health protocols and shutdowns. This caused delays in consumers getting their hands on goods like bicycles and furniture. So prices rose more sharply than usual.

Compared with the GFC, this resulted in a stronger response on the inflation dimension and a weaker response on the activity dimension. So one country’s decision to maintain stimulus disproportionately impacted others through the effects of that stimulus on the prices of globally traded goods.

For instance, as US stimulus spread through the economy and led to a greater demand for new vehicles, Taiwan—a key manufacturer of microchips needed to make modern vehicles—was struggling to adapt its production processes and facing long backlogs of orders. Instead of stimulus-induced demand leading to more output, this bottleneck meant global automobile production stalled and prices increased—not only in the United States, but also in Canada and around the world.

The net result was that, during the recovery phase of the pandemic, it’s likely a somewhat faster global withdrawal process could have made all countries better off.

To summarize, lessons from the GFC informed key parts of the policy response to the pandemic. However, in hindsight, policy-makers everywhere should have been more alert to the possibility that the nature of global spillovers can change over time. A better understanding of these dynamics and how policy actions can ripple around the world should enable more effective global responses to future shocks.

Lets see which lessons will apply in next crisis.

I also like the way dg has mentioned macroeconomics of 2020s. we need to teach and reflect on macroeconomics based on time periods macroeconomics of 1930s, macroeconomics of 1970s. macroeconomics of 2008-19, macroeconomics of 2020s and macroeconomics of 2022.

Monetary policy: past, present and future

September 15, 2022

Claudio Borio in this BIS speech analyses monerary policy over the last 40 years:

A single thread runs through the challenges monetary policy has faced over the past 40 years, those it is facing now and those that it may well face in the future: this is the changing nature of the business cycle. The nature of the cycle changed in the early to-mid 1980s, with recessions evolving from the inflation-induced to the financial cycle-induced kind. Deep shifts in policy regimes arguably help explain that change – financial liberalisation, the globalisation of the real economy and the establishment of credible anti-inflation regimes focused on near-term price stability.

Now policymakers face an unprecedented constellation: recession risks in the context of monetary tightening to quell inflation, combined with financial vulnerabilities, notably in the form of historically high debt levels. Peering into the future, the environment may become structurally more inflationary, as a number of deep forces change direction once more.

At all points, the interaction between monetary policy regimes and the economic environment has played a key role in setting the stage for the next challenge.

Trust, digitalisation and banking: from my word is my bond to my code is my bond?

September 14, 2022

Pablo Hernández de Cos, Chair of the Basel Committee on Banking Supervision and Governor of the Bank of Spain in this speech:

Banking has always involved human relationships. The etymology of “bank” originates from the Late Latin for bench, referring to the place where money handlers sat in the market to transact in person.20 While advances in financial technology that seek to enhance the efficiency, inclusiveness and quality of services should be welcomed, they will not replace the critical role of human judgment in banking and supervision. And they cannot substitute for the importance of ongoing cooperation among Basel Committee members with a view to safeguarding global financial stability.

From thaler to tackle: On how to lift us out of the current crises

September 13, 2022

Mr Klaas Knot, President of the Netherlands Bank in this speech:

As a central banker, to be in the Czech republic is a special feeling for me. Do you know why? Because if it were not for Czech ingenuity the world would likely have looked quite different. And no, I’m not talking about essential Czech inventions such as mechanical pencils, sugar cubes or pilsner. I am talking about something the financial industry is much more fond of– In a way, the seeds of our shared monetary history lay in the tiny town of Jachymov.

For it was there, at the dawn of the Renaissance, that the rulers of Bohemia started minting coins that would later serve as the prototype for all major Western currencies. With an image of saint Joachim on the front and the Bohemian lion on the back, the new currency was labelled as “Joachimsthalers” – which soon was shortened to “thalers”. With the helping hand of the Holy Roman Empire, the thaler spread across Europe. From here it was just a matter of time before the Dutch brought the Leeuwendaler to New Amsterdam. And after New Amsterdam turned into New York, the Leeuwendaler turned into the dollar.

By passing through the Joachimsthalers from neighbor to stranger, our ancestors breathed life into our financial system. They relied on each other to spread their currencies across the globe. They relied on their currencies to improve their welfare and wellbeing. That interdependence still persists in our financial system today: we need strong, stable and sustainable finances to ensure and support welfare and wellbeing. This is a balancing act that requires all of us to weigh in. For there are many challenges that can disturb the balance.

When we now think of the most pressing financial challenges our societies face, the rapid revival of inflation stands out. The strong price increase for energy and commodities in particular has hit societies all over the world with force. Pushed past its point of inflection, inflation eats away at consumption and investment capacity and frustrates financial planning. In response, the ECB rallied to raise policy rates to calm down the business cycle and keep inflation expectations anchored. We will continue doing so until the inflation outlook has stabilized around our 2% target in the medium term.


Just as our ancestors joined hands to create a strong financial sector by means of the Joachimsthaler, we now have to honor their legacy by keeping it that way. Today, a strong financial sector requires resilience and a transition to a balanced, sustainable economy. We do so together, but all in our own way, relying on our own strengths. As Madeleine Albright, daughter of a Czech diplomat, once said:

“The main thing is to remain oneself, under any circumstances; that was and is our common purpose.”

In times of growing challenges to price and financial stability, there is great value in our combined effort. It is our European identity to come together and serve as a positive example for others. Once again, we have to transform our interdependence into collective action. We all have our role to play.


What Happens when Big Brother Meets Big Tech

July 29, 2022

Lynn Parramore of INET interviews University of Tennessee law professor Maurice Stucke who has has been critical as tech firms have grown into giant “data-opolies” profiting from surveillance and manipulation. He warns that legislative inaction and wider government complicity in this surveillance are eroding fundamental rights to privacy along with the ability of federal agencies to regulate Big Tech.

Lynn Parramore: Concern over privacy is increasing right now, with people worrying about different aspects of the concept. Can you say a bit about what privacy means in a legal context? With the digital revolution, privacy obviously means something different than it did 50 years ago.

MS: Yes, privacy is not a single unitary concept. There are different strands. There’s bodily privacy and decisional privacy – the right to make important decisions about one’s life, like whether to have a child or not, without governmental interference. Within the bucket of decisional privacy would also be marriage, contraception, and things of that nature. There’s intellectual privacy (such as what one reads, watches, or thinks) and associational privacy (such as the freedom to choose with whom one associates). Informational privacy is another strand, where you can control your personal information, including the purpose for which it is used.

There used to be the idea that data protection and privacy are fundamental human rights.

Numerous supporters of privacy rights have argued that U.S. Constitution should protect an individual’s right to control his or her personal information. One of the earlier Supreme Court cases involving informational privacy tested that belief. New York passed a law requiring doctors to disclose to the government their patients’ name, age, and address when they were prescribed certain drugs. All of this information was collected in a database in New York. A group of patients and their prescribing doctors challenged the law, contending that it invaded their constitutionally-protected privacy interests. The case was decided in 1977 — before the Internet and cloud computing. The Supreme Court, however, did not perceive any threat to privacy implicit in the accumulation of vast amounts of personal information in computerized data banks or other massive government files. The Court instead noted how the mainframe computer storing the data was isolated, not connected to anything else. Today, the data are not collected and maintained on some isolated mainframe. A torrent of data is being collected about us that we may not even have thought about. When you go to purchase gas at the local station, for example, you may not think of the privacy implications of that transaction. But there are powerful entities that collect vast reservoirs of first-party data from customers, and also sources that are reselling it, like the data brokers.

Congress, unlike the Supreme Court, recognized in the 1970s that the privacy of an individual is directly affected by the government’s collection, use, and dissemination of personal information and that the government’s increasing use of computers and sophisticated information technology has greatly magnified the harm to individual privacy. The preamble of the Privacy Act of 1974, enacted by Congress, states that privacy is a fundamental right protected by the Constitution. It was a landmark law in seeking to provide individuals greater control over their personal data in government files.

But the Supreme Court, on two occasions when it had the opportunity, declined to hold that the Constitution protects informational privacy as a personal and fundamental right. A majority of the justices just punted. They said that even if one assumed that such a right existed, it did not prevent the government from collecting the information it sought in both cases. Justices Scalia and Thomas were blunter in their concurring opinion: they simply argued that there is no constitutional right to informational privacy.


The return of macroeconomic imbalances in Africa: adapting to life on the edge

July 25, 2022

IMF African Department Director Abebe Aemro Selassie in this speech discusses the outlook for Africa. The macro outlook is again on the edge.

First, imbalances are back and this creates a very difficult situation for policymakers in the region, with more uncertainty, more social tensions, and ever-decreasing policy space to respond.

Second, we have to rethink traditional policy prescriptions to meet the imbalances we are facing. And this is something we must not be afraid to do. Many economic targets and anchors of the past now seem unrealistic and obsolete. Thinking through these issues will help countries living on the edge to undertake much-needed reforms and eventually move away from it.

And finally, despite the difficult path ahead—marked by constraints, imbalances, and growing challenges—I remain deeply optimistic about the region’s prospects. I returned to my country in 1992 as a would-be technocrat at a similarly difficult time for the region. And if anybody had said to me then that Accra, Kampala, and Addis would 30 years on look anything like what they do today, I would have thought they were under the influence of more than just a cup of strong Ethiopian coffee. And of course, the changes as I said go well beyond just the shiny new buildings that we see in these cities: there has been fundamental development progress that has shifted the opportunity set of a generation. I have no doubt that, from this stronger foundation, progress over the next 30 years will be more remarkable still. But only if, as the generation of policy makers from the 1990s did, we take the necessary bold decisions.

Deposit Insurance in India – Journey; Milestones; Challenges

July 20, 2022

Michael Patra, DG of RBI in this speech discusses the changes in deposit insurance in India. The speech features in RBI July-2022 Bulletin.

During the year 2021-22, the DICGC has achieved remarkable progress in the settlement of claims for deposit insurance. With the amendment to the Act coming into force from September 01, 2021 claims amounting to Rs 3,457 crore have been settled between December 2021 and March 2022 in the case of 22 UCBs under AID. As I mentioned earlier, this feat was commemorated by the Hon’ble Prime Minister in the Udyog Bhavan in Delhi. In the case of liquidated banks, claims settled amounted to Rs 1,268 crore. Turning to mergers, a major achievement of the Corporation was the financial assistance of Rs 3,791 crore it provided to Unity Small Finance Bank for making payments to depositors of the much-sensationalised Punjab and Maharashtra Cooperative Bank Ltd or PMC Bank.

Overall, the claims settled under these three channels amounted to `8,517 crore, which is a commendable achievement when seen in comparison with the total of claims of `5,763 crore settled since the establishment of the DICGC up to 2020-21.

On future of DICGC:

In closing, it is important to closely monitor the impact of financial innovations like e-money and digital products on the scope and coverage of deposits and constantly recalibrate definitions and parameters of deposit insurance cover. Public awareness about the actions of the DICGC need to be given sufficient coverage in the public domain through different channels of regular communication.

I have always wondered why an institution like the DICGC with strong fund positions still resides in RBI premises and does not have an office of its own. I am sure such an  independent office will boost morale and pride in the institution to which you belong.

Furthermore, why does the DICGC with so many achievements under its belt need to be staffed almost exclusively by the RBI? I would look for a healthy mix that includes lateral hires of domain experts.

There is also a pressing need to regularly upgrade knowledge and skill exposures through deputations to leading deposit insurers around the world, secondment programmes and technical agreements for knowledge sharing. Upgradation of IT infrastructure on a continuous basis for integrated solutions is a minimum in today’s fast changing technological environment.

Low-inflation regime vs high-inflation regime: a look under the hood

July 19, 2022

Claudio Borio of BIS in this insightful speech discusses how inflation differs in low inflation vs high inflation regimes.  He draws analogy from a car and points how the engine functions by looking under the hood:

After so many years of struggling to lift inflation up to target, central banks are again facing the challenge of bringing it down. This year’s AER looks at inflation “under the hood” to examine more closely how its engine works. It examines how individual (sector-specific) price changes interact with the change in the aggregate price index – inflation proper – and how wage- and price-setting is influenced not only by cyclical factors – economic slack – but also by structural ones and, importantly, by the behaviour of inflation itself. As a result, we characterise the inflation process as two very different regimes – a low-inflation and a high-inflation regime – and self-reinforcing transitions across them. The analysis provides new insights into how to adapt policy to those regimes and to the transitions across them.

Climate change and finance: It’s the risk management, stupid

July 14, 2022

Bank of England recently published results of its Climate Biennial Exploratory Scenario (CBES). CBES explores the financial risks posed by climate change for the largest UK banks and insurers (participants).

Anil Kashyap, Member of Bank of England’s Financial Policy Committee summarises results of CBES.

It is something of an understatement to say that central banks have a lot on their plates these days. Globally this has led many prominent observers to question whether central banks are over-reaching in analyzing climate risk? I am going to explain why a proper analysis of climate risk is absolutely essential from a financial stability perspective. To make this tangible I will illustrate my argument by describing some of the findings from the climate change focused Exploratory Exercise, known as the “CBES”, that the Bank of England has recently completed with the major UK banks and insurers.footnote[1] The results were published in May, and I am going to try explain why I see them as one of the Bank’s most important publications of this year – perhaps I can even convince some of you to take a look.

I will divide my remarks up into three parts. I will begin with a brief overview of what we did in this exercise. Then I will describe some of the findings that I see as being most interesting and, in a few cases troubling. I will conclude by posing some open questions that I think senior management at firms ought to be asking.

My bottom line is that financial services firms and their customers have a long way to go if we are going to overcome some of the problems surfaced by the CBES. Unless we make significant progress in the near term, we will encounter serious problems for the financial system in the long-term.

In the end he rephrases Clinton:

When Bill Clinton was running for President of the United States in 1992 his campaign advisors famously had a sign in their headquarters to try to make sure they kept the big picture in mind. That sign said “It’s the economy stupid”. I fear that the CBES was so rich with numbers that it is easy to get lost in the details and lose the forest from the trees about what we learned already and what we need to do to move forward. That is why I titled the speech “It’s the risk management stupid”.

My big takeaway is that private sector firms have a big risk management problem regarding climate risk in front of them. It is the job of supervisors to assess the size of the problem and work with the industry to address it. To say this is over-reach is folly. Risks to financial stability can arise from many places, whether its climate change, cyber-attacks or the cryptoassets. If the supervisors were ignoring this problem, a decade on critics would be asking how could we have not seen problems coming and failed to act?

Superb speech. Lots of insights.

What did the monetarists ever do for us?

June 27, 2022

Huw Pill of Bank of England in this speech:

I am tempted to start my remarks with the phrase: ‘And now for something completely different …’.

In part, this is intended to signal a change of pace. After a series of outstanding presentations of very high quality research papers, I am afraid that I will lower the tone somewhat by bringing more of a policy orientation to the discussion.

But it is also a nod to the Pythonesque title assigned to my remarks.

I understand that Monty Python was (and is) very popular in Germany. But to avoid any mis-understanding, I thought I should clarify from the outset that the title is an allusion to a famous sketch from one of the Money Python films.

To incite rebellion against their Roman rulers during the time of empire, the rebel leader – played by John Cleese – asks the question: ‘What have the Romans ever done for us?’, only to be met by a long and impressive list of achievements and contributions made by the Romans to the quality of life.

In asking a similar question about monetarism – or perhaps, more precisely, a question about the role of monetary quantities in the design, conduct, transmission and presentation of monetary policy – I seek to explore whether a similar conclusion can be drawn.

While monetarism remains unfashionable in academic and central banking circles, perhaps it has contributed more to the past, present and potential future of monetary policy than we conventionally admit.


Profile of Melissa Dell: Pioneers new ways of unmasking legacies of the past

June 23, 2022

IMF’s Finance and Development Jun-2022 edition profiles Melissa Dell of Harvard University:

Scholars have long wondered why some places prosper, while others do not. How do societies climb the development ladder to greater prosperity? What is the secret sauce of economic success? Why is GDP per capita in South Korea so much higher today than it is in Cambodia, which had a similar standard of living in 1960?

Questions like that have inspired sweeping, almost epic books that span centuries and continents, like Guns, Germs, and Steel, by Jared Diamond, which looks at environmental factors, and Why Nations Fail, by Daron Acemoglu and James A. Robinson, which focuses on the role of institutions. 

These questions fascinated Dell, but she wanted to follow a different path. She took a microscope to the subject, looking not at the diverging fortunes of continents and nations but of neighboring towns and villages.

“To be able to really delve into things, it helps to have that kind of local perspective,” Dell says in an interview with F&D. “By focusing on the micro level, you can get a lot more detail and granularity about what’s going on.”

One of Dell’s big contributions to the literature of development economics—and the advantage of her micro approach—has been to identify what she calls channels of persistence. 


Indian Business: Past, Present and Future

June 10, 2022

RBI Governor Shaktikanta Das in this speech talks about evolution of Indian Businesses over 4 centuries:

The topic I have chosen for my address today, namely, “Indian Businesses: Past, Present and Future” will resonate with the audience here. Businesses form the bedrock of an economy and on an occasion like this, it would be worthwhile to look at how Indian businesses have evolved over the years. The current context of transformative changes that are altering the business landscape in India and across the world is yet another reason for choosing this theme.

2. I have structured my talk in the following order. I shall start by recounting the historical evolution of Indian businesses to draw lessons for the future. I will then turn to the current scenario where I propose to highlight the tremendous opportunities that are available today for Indian businesses and the challenges that they would have to contend with. I also propose to highlight aspects of corporate governance and related issues that are indispensable for a sustained performance by any entity or business.

3. Historically, businesses have been the creators of wealth by bringing innovation in production and trading activities which facilitated higher productivity and better standard of living of the people. Apart from creating growth and employment opportunities, thriving businesses generate vital resources through tax payments for the government to undertake welfare measures. Thus, both from growth and welfare standpoints, businesses play a crucial role in overall economic development. In the words of Nobel Laureate in literature T. S. Eliot, “Only those who will risk going too far can possibly find out how far one can go.”1 The underlying theme of business is to explore opportunities and capitalise on them.

4. In India, business and entrepreneurship have always had a special place in our society. The history of Indian business is a fascinating story and one that is closely intertwined with the political and economic history of our country. Traditionally, Indian businesses were rooted in local knowledge and resources that were greatly admired all over the world. During the colonial period, however, many of our businesses were faced with existential challenges. Showing resilience and capacity to innovate and improvise, Indian business has over the years not only survived but is now well-positioned to take India’s growth story forward. Indeed, this could just be the moment of India’s arrival as a global growth driver.

Interesting to see RBI Governor talking about importance of Indian business history. Indian business history is indeed very exciting and should be taught to all possible students.  There is lot to learn and figure.

Inflation targeting in Sweden has been a “killer app” for 30 years – but updates need to be downloaded

June 9, 2022

Riksbank’s Governor Stefan Ingves reviews inflation experiences in Sweden from copper targeting to inflation targeting. He says inflation targeting has been a killer app as inflation has remained low and framework has worked well despite multiple crisis in last decade. However, just like any other killer app IT needs to download updates.

 For the inflation targeting policy to continue to manage the various crises that arise, it needs to be updated as the world around it changes. I have mentioned two updates that I consider to be particularly important: Some of the macroprudential policy tools should lie with the Riksbank and, in addition to price stability, financial stability should be given some weight in monetary policy decisions. With these updates, I would not be surprised if inflation targeting is also the ‘killer app’ for the next 30 years. 

Ingves referring to killer apps and downloads for explaining monetary policy is an interesting way to connect to today’s audience…

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