Decline of Kota as a manufacturing hub in Rajasthan

October 4, 2019

Interesting piece in Hindu Business Line by Tina Edwin:

Outsiders today recognise Kota as a coaching powerhouse that annually prepares thousands of students for competitive exams. But this Rajasthan town sees itself mainly as a manufacturing hub going through a downturn. As tuition classes and student hostels eat into its once thriving factory spaces, Kota desperately looks for ways to revive its industrial shops.

Fair bit of history in the piece. Did not know Kota was called Kanpur of Rajasthan! A testimony to how powerful Kanpur once was and how much it has declined…


Modern monetary theory and its critics

October 4, 2019

Lots of recent research on MMT:

The new edition of Real World Economics Review has several papers.

Cato Journal has few papers.

Fiscal Policy getting traction amidst European monetary policymakers…

October 4, 2019

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

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

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Law and macroeconomics – the global evolution of macroprudential regulation

October 4, 2019

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

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What Moscow’s Sheremetyevo airport teaches about transition economics

October 4, 2019

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

Overall experience:

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


How “deep” parameters of central banking of 1990s are a distant memory now

October 3, 2019

Interesting speech by Mary Daly, President of San Francisco Fed. She gives the speech on 30 years of inflation targeting in NZ.

She joined the Fed in 1990s and there were three main parameters around mon policy. All those have changed now:

To understand the new environment we face, we first have to look back to the past. And here I will use the United States as an example.

When I started working at the Federal Reserve in 1996, I learned three important facts—the “deep” parameters of central banking. First, the potential growth rate of the U.S. economy averages around 3.5%. Second, the real neutral rate of interest—or r-star—changes over time but is well-bounded away from zero, mostly in the range of 2% to 3% or higher (Congressional Budget Office 2019, Laubach and Williams 2003, FRB New York 2019, Christensen and Rudebusch 2019). Third, unemployment and inflation are strongly linked through the Phillips curve.

Fast forward to 2019. These facts—these deep parameters—feel like a distant memory. As of June, participants of the Federal Open Market Committee put longer-run potential growth in the United States at about 1.9%. Estimates of the long-run neutral rate of interest were penciled in at just 0.5% (Board of Governors 2019b). As for the Phillips curve, most arguments today center around whether it’s dead or just gravely ill. Either way, the relationship between unemployment and inflation has become very difficult to spot.

Although the numbers may be a little different, the changes I’ve described are not unique to the United States. Global demographic shifts and lower productivity gains are tempering growth and reducing long-run interest rates in many countries (Holston, Laubach, and Williams 2017). And a number of central banks are finding that inflation is less responsive to labor market improvements than in the past.

These trends have important implications for monetary policy. Lower r-star and the zero lower bound mean we’ll have less room to maneuver when the next downturn occurs. One of the lessons learned from the financial crisis and its aftermath is that alternative tools like forward guidance and the balance sheet can be effective at stimulating economies. However, they’re still imperfect substitutes for the most effective tool at our disposal: traditional interest rate adjustments. And the fainter signal coming from the Phillips curve means we have less direct, real-time feedback about how monetary policy is playing out in the economy.

In other words, the jobs of central banks have gotten harder.


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

October 3, 2019

Superb ECB paper by Ulrich Bindseil.

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

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

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

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

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


Estimating global poverty in R and Stata

October 1, 2019

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

WB’s data blog reports:

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

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

The R package povcalnetR can be installed from github with

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


and will soon be available in CRAN.

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

ssc install povcalnet

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

net install github, from (“”)

github install worldbank / povcalnet

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

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

R: df <- povcalnetR::povcalnet_wb()

Stata: povcalnet wb, clear

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


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

October 1, 2019

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

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

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The Puzzling Lure of Financial Globalization

October 1, 2019

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

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


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

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

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

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

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

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

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

The financial development of London in the 17th century revisited

September 30, 2019

Fascinating research by Nathan Sussman of Graduate Institute of Geneva.

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

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

Protection of the euro against counterfeiting and on the authentication of euro coins in Luxembourg

September 30, 2019

Interesting bit of commentary on ECB’s website.

Luxembourg is placing a new law to deter counterfeiting of Euros in the country. ECB sends its views on the new law. This is a bit more interesting as ECB is a suprnational central bank not accountable to any one government. But Euro circulates in the respective countries and needs counterfeit laws:

The draft law amends five national laws in order to introduce criminal law sanctions for relevant institutions, as well as their managers and responsible staff, who fail to comply with their obligations as set out in Article 6 of Council Regulation (EC) No 1338/20016. Under that Article, relevant institutions are obliged to: (i) ensure that euro banknotes and coins which they have received and which they intend to put back into circulation are checked for authenticity and that counterfeits are detected; (ii) withdraw from circulation all euro banknotes and coins received by them which they know or have sufficient reason to believe to be counterfeit; and (iii) immediately hand over such euro banknotes and coins to the competent authorities. The relevant institutions are the addressees of Article 6(1) of Regulation (EC) No 1338/2001, which are further specified under the draft law as: (i) merchants engaged in the processing and distribution to the public of money via automated bank machines or automated dispensers; (ii) casinos and similar institutions engaged in the processing and distribution to the public of money via automated teller machines or (cash dispensers); (iii) credit institutions, and, within the limits of their payment activity, other professionals of the financial sector; (iv) companies performing private security and surveillance activities; and (v) payment institutions, within the limits of their payment activity. The foreseen criminal law sanctions consist of fines between EUR 1,250 and EUR 125,000.

1.3 The draft law also complements the BCL’s tasks in respect of euro banknotes and coins, in addition to those laid down in the Law of 23 December 1998 on the monetary status and the Banque centrale du Luxembourg (hereinafter the ‘Law on the BCL’). Firstly, the draft law formally designates the BCL as the competent authority for ensuring compliance with Council Regulation.

ECB supports most of these measures…

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

September 27, 2019

Missed this development:

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

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

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

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

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

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


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

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

A big development!

Loan mela comeback: Missed history lessons

September 27, 2019

My new piece in Business Standard. It reviews history of loan mela.


The constitution won’t save American democracy, only its people can..

September 26, 2019

Daron Acemoglu and James Robinson write a timely piece. Fair bit of world leaders are justifying their actions saying they are doing things as per Constitution. Any Constitution for all you know is a human creation and has many gaps. It requires the leadership to understand the gaps and not exploit them, but we are hardly seeing this.

A & R write:

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The ideas and influence of Martin Feldstein, 1939-2019

September 26, 2019

James Poterba and Lawrence H. Summers pay a tribute to Marty Feldstein who passed away this year:

In medieval England magic was a service industry used by rich and poor alike

September 25, 2019

Interesting article by Tabitha Stanmore of Univ of Bristol.

Magic is a universal phenomenon. Every society in every age has carried some system of belief and in every society there have been those who claim the ability to harness or manipulate the supernatural powers behind it. Even today, magic subtly pervades our lives – some of us have charms we wear to exams or interviews and others nod at lone magpies to ward off bad luck. Iceland has a government-recognised elf-whisperer, who claims the ability to see, speak to, and negotiate with the supernatural creatures still believed to live in Iceland’s landscape.

While today we might write this off as an overactive imagination or the stuff of fantasy, in the medieval period magic was widely accepted to be very real. A spell or charm could change a person’s life: sometimes for the worse, as with curses – but equally, if not more often, for the better.

Magic was understood to be capable of doing a range of things, from the marvellous to the surprisingly mundane. At the mundane end, magic spells were in many ways little more than a tool. They were used to find lost objects, inspire love, predict the future, heal illnesses and discover buried treasure. In this way, magic provided solutions to everyday problems, especially problems that could not be solved through other means.

This all may sound far-fetched: magic was against the law – and surely most people would neither tolerate nor believe in it? The answer is no on both counts. Magic did not become a secular crime until the Act against Witchcraft and Conjurations in 1542. Before then it was only counted as a moral misdemeanour and was policed by the church. And, unless magic was used to cause harm – for example, attempted murder (see below) – the church was not especially concerned. Often it was simply treated as a form of superstition. As the church did not have the authority to mete out corporal punishments, magic was normally punished by fines or, in extreme cases, public penance and a stint in the pillory.

Changing nature of services industry..:-)

Financial conditions and purchasing managers’ indices: exploring the links

September 25, 2019

Purchasing Managers’ Indices (PMI) is becoming increasingly popular with analysts.

In the BIS quarterly review (Sep-19), Burcu Erik, Marco Jacopo Lombardi, Dubravko Mihaljek and Hyun Song Shin explore links between PMI and Financial conditions:

Purchasing managers’ indices (PMIs) have found a place in global conjunctural analysis and quarterly GDP nowcasting, serving as reliable concurrent indicators of real economic activity. They also closely mirror changes in equity prices and corporate bond spreads. More surprisingly, PMIs react to changes in the dollar index, and do so in a way that runs counter to a trade competitiveness explanation. We show that the financial variables help predict PMIs and explain a significant proportion of their variation. The two seem to be linked through shifts in macroeconomic sentiment and global financing conditions.


A fifty-year history of Facebook’s Libra

September 25, 2019

JP Koning in this superb blogpost (as  always) points idea of Libra is hardly new. There have been several attempts in the past both private and public to create a similar currency unit:

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When central bankers use Montesquieu’s quote of “sweet ties of commerce”….you know we are living in tough times

September 25, 2019

We are living in tough times for sure. It is not very often when you see a central banker say that it is “sweet ties of commerce” which are keeping us away from military conflict! Charles Louis de Secondat, Baron de Montesquieu, a 18th century thinker, was a votary of using commerce for progress and peace.

Who better than François Villeroy De Galhau, Governor of Banque de France to say these words in this speech. After all France has been central to all such conflicts. He says world faces three conflicts:

It gives me great pleasure to speak before you today. I follow in the footsteps of several Ministers of Foreign Affairs, including Jean-Yves Le Drian and Nathalie Loiseau. Caro Enrico, thank you for your invitation, knowing this makes me feel all the more grateful and honoured! The decision to switch from diplomats to a central banker such as myself perhaps sends out three signals.

First, rarely have geopolitics and economics been so closely intertwined. Faced with the rise in protectionist tensions and the verbal volleys, which unfortunately intensified again this summer, some even say that economic interdependence – the “sweet ties of commerce” praised by Montesquieu – is the only thing still shielding us from military conflict. Conversely, rarely has a global economic slowdown been so clearly attributable to political causes: nearly everywhere, public policy instability and uncertainty are on the rise and are damaging private sector confidence; I shall come back to this.

Second signal: rarely have central banks been called upon to do so much.  I’m not going to bore you with a lesson on the technical delights and subtleties of monetary policy. Let’s just say that we have a central mandate – price stability – and a main instrument for achieving this – the short-term interest rate. But for the past ten years, since the great financial crisis, we have been using new instruments: quantitative easing (QE), forward guidance[i] and even negative rates. These non-standard policies have been effective; but they can also create the – mistaken – illusion that monetary policy is omnipotent.

Third signal: rarely has Europe appeared so necessary and at the same time so divided. I am a French and European official, I was in Maastricht 28 years ago to launch the euro; every two weeks I take part in meetings of the ECB Governing Council which manages the currency. I stand by this conviction in Europe and in the belief that the joint work carried out by France and Germany is an indispensable driver, even if it is not enough. Nearly 30 years ago, the fall of the Berlin Wall injected new impetus into the construction of Europe.

Today, Europe is turning in on itself, is on the defensive. Yet it is vital that it make itself heard in the face of the threats that it is facing, and that it do so with one voice if it doesn’t want to be inaudible. But beyond the threats, and at the risk of sounding paradoxical and even a little provocative, I would like to present you with an opportunity: in the current crisis of globalisation, Europe doesn’t need to keep its head down; it should assert and propose a model – its own social, environmental and mutilateral model.

I propose that we do this in the spirit of Stefan Zweig, who as early as 1934, admirably described the state of mind of the great European Erasmus of Rotterdam: “Instead of listening to the vainglorious claims of petty princelings, of fantastical sectarians and of national egoists, the mission of the European is on the contrary to emphasise that which unites the peoples.


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