In press meeting yesterday (16 Sep 2021), FM Nirmala Sitharaman announced establishing and working of National Asset Reconstruction Company Ltd (NARCL).
My article in Moneycontrol explaining the policy and whether NARCL will cleanse the banking system. The answer depends on getting many things right going forward.  Proof of pudding lies in its eating.

This entry was posted on September 17, 2021 at 4:23 pm and is filed under Academic research & research papers, Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed.
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Bharat Ratna M. Visvesvaraya was born on 15 September 1860/1861.
Prof Aparajith Ramnath of Ahmedabad Uni writes a superb account of how Visvesvaraya built the dam on river Cauvery against all odds. And how the expenditure on dam met with sharp criticism:

Paris and the Eiffel Tower, San Francisco and the Golden Gate Bridge, Kolkata and the Howrah Bridge: some cities are fused in the imagination with iconic engineering works. If the more modestly sized city of Mysuru has such a symbol, it is the Krishnarajasagara or KRS reservoir and dam, constructed across the Cauvery River between 1911 and 1932.
The KRS, located about 20 km north of the city, is a constant presence in the lives of Mysoreans. Every summer, the newspapers are full of reports about the water levels in the

Nicole Adams, David Jacobs, Stephen Kenny, Serena Russell and Maxwell Sutton in this Reserve Bank of Australia Bulletin article reviews the developments in Chinese financial system.
They point how the Chinese financial system is gradually becoming larger and more open to foreign competition. In near future, news in Shanghai and  Shenzen will influence global financial markets:

Risks in China’s financial system remain elevated despite its economy’s strong recovery from the COVID-19 pandemic and the modest and targeted use of monetary stimulus. These risks will continue to shape its economic management in the years ahead, with implications for growth and, in turn, financial conditions in the global economy.
While China has become heavily integrated with the global trading system, its

Douglas Irwin highlights the importance of economic ideas in pushing growth in Taiwan.
Irwin starts with Krugman pointing to the role of ideas in pushing economic growth:
In a recent New York Times piece, Paul Krugman discussed two drivers of the “hyperglobalization” era that began in the mid-1980s and lasted until the global financial crisis of 2008. These drivers are improved transportation technology (shipping containers and airfreight) and lower trade barriers (tariff reductions) in developing countries. These factors combined to reduce trade costs and dramatically increase global integration.[1]
Krugman calls particular attention to the “trade policy revolution” in developing countries.[2] (At the time, the managing director of the International Monetary Fund (IMF), Michel

Retail investing is rising for both individual stocks and mutual funds.
Prof Parthajit Kayal of Madras School of Economics in this financial express article shares some advice for MF investors. He says investors should invest in small sized funds rather than larger counterparts:
Academic studies have shown that mutual fund schemes with lower funds or assets under management tend to perform better than the popular mutual fund schemes with a large fund under management. In this article, we discuss why it makes sense to go with small-sized funds.
Due to regulatory reasons, most big mutual funds must limit their ownership stakes to 5% or 10% of the total shares of a company. Therefore, it is difficult for large funds to buy enough shares of smaller companies. With this restriction, they

The list of anniversaries in 2021 keeps growing.
100th birthday of Dr Kurien and 75 years of Amul,
100th birthday of PV Narasimha Rao,
100 years of South African Reserve Bank,
100 years of Tamilnad Mercantile Bank
50 years of Bangaldesh,
30 years of India’s reforms,
25 years of IDRBT,
5 years of Indian Bankruptcy Code,
There must be many more which I am missing. In 2018, there were several anniversaries as well.
2021 marks the 50 years of Monetary Authority of Singapore as well
Prior to 1970, the various monetary functions associated with a central bank were performed by several government departments and agencies. As Singapore progressed, the demands of an increasingly complex banking and monetary environment led to streamlining of the functions to facilitate the development of a

As central banks and other experts think/work on using CBDCs for crossborder transfers (this too), there could be other interesting ways.
India and Singapore have decided to link their local digital payments for crossborder transfers. From RBI:
The Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) announce a project to link their respective fast payment systems viz. Unified Payments Interface (UPI) and PayNow. The linkage is targeted for operationalisation by July 2022.
The UPI-PayNow linkage will enable users of each of the two fast payment systems to make instant, low-cost fund transfers on a reciprocal basis without a need to get onboarded onto the other payment system.
The UPI-PayNow linkage is a significant milestone in the development of infrastructure

Interesting profile of Prof Solomon Hsiang of University of California Berkeley (pronounced Shung):
Solomon Hsiang is a smart man. He listens to his wife.
Over breakfast a day or two after the California pandemic lockdown in March 2020, Google researcher Brenda Chen asked a question. Couldn’t her husband’s Global Policy Laboratory at the University of California, Berkeley, shed some light on the world’s fight against COVID-19?
“A lab called ‘the Global Policy Lab’ should be able to tackle this question,” she recalls saying.
He raised it with his team on a conference call that morning. The lab uses sophisticated statistical analysis of economic data—econometrics—and advanced computing power to address questions related to climate change, development, violence, migration, and disasters.

Jagjit S. Chadha, Luisa Corrado, Jack Meaning and Tobias Schuler in this ECB paper analyse the monetary and fiscal policy during the
In response to the coronavirus (Covid-19) pandemic, there has been a complementary approach to monetary and fiscal policy in the United States with the Federal Reserve System purchasing extraordinary quantities of securities and the government running a deficit of some 17% of projected GDP. The Federal Reserve pushed the discount rate close to zero and stabilised financial markets with emergency liquidity provided through a new open-ended long-term asset purchase programme.
To capture the interventions, we develop a model in which the central bank uses reserves to buy much of the huge issuance of governmentbonds and this offsets the impact of shutdowns

Bihong Huang ; Maria Teresa Punzi ; Yu Wu in this IMF working paper:
This paper assesses the financial risks arising from transition toward a low-emission economy.
The environmental DSGE model shows tightening environmental regulation impairs firms’ balance sheets, and consequently threatens financial stability in the short term.
The empirical analysis indicates that following the implmentation of Clean Air Action Plan, the default rates of high-polluting firms in a Chinese province rose by around 80 percent.
Joint equity commercial banks with higher level of independence were able to appropriately price in their exposure to transition risks, while the Big Five commercial banks failed to factor in such risks.

This entry was

RBI opened the third cohort of its Sandbox under the theme – MSME lending.
RBI also announced that in its second cohort of crossborder payments, there were 27 applications of which 8 were chosen. Seeing the applications, it seems foreign travel, foreign investments etc are going to be easier going forward.
In another announcement, RBI said that the 6 entities in its first cohort on retail payments has moved from test stage to the exit stage.
The list of these experiments looks exciting. RBI could also consider putting up videos of the these different technologies and the changes they will bring to our lives.

This entry was posted on September 14, 2021 at 10:22 am and is filed under Indian Economy/Financial Markets. You can

My new article on Moneycontrol.
The two former RBI Governors recently expressed their views on whether and how central banks should address climate change.  The piece sums their views and suggests way forward for central banks.

This entry was posted on September 14, 2021 at 9:39 am and is filed under Academic research & research papers, Central Banks / Monetary Policy, Economics – macro, micro etc, Financial Markets/ Finance, Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed.
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Benoît Cœuré, Head of the BIS Innovation Hub in this speech:
Across the world, central banks are coming together to focus on their common mission. Charged with stability, they will not rush. They want to move fast, but not to break things. Consultations with payment systems and providers, banks, the public and a broad range of stakeholders have begun in some countries. To build a CBDC for the public, a central bank needs to understand what they need, and work closely with other authorities. The BIS Innovation Hub is helping central banks. We already have six CBDC-related proofs of concept and prototypes being developed in our centres, and more to come.9
The European Union is uniquely placed to face the future. You can build on a state-of-the-art fast payment system, on the strong

Prof Damodar Nepram and James Konsam of Manipur University in latest edition of Indian Public Policy Review discuss how GST has impacted the North-East States. The impact so far has been positive: 
The north eastern (NE) states have largely benefitted from the introduction of the goods and services tax (GST) in the country. Arunachal Pradesh witnessed the highest increase in tax collections in the country, while the performance of Manipur, Mizoram and Nagaland was well above the national average.
This can be attributed to three distinct reasons.
First, with the shift from origin-based levy to destination-based taxation in inter-state sales of goods and services, these states collected much more revenues as they are predominantly consuming states.
Second, GST being a value added tax

Ananya Goyal, Renuka Sane and Ajay Shah in this blogpost compares India’s development metrics of today to when the other countries achieved similar levels:

India has been stepping out from poverty into middle income. It is estimated that the proportion of persons below the PPP$1.90 poverty line has dropped to an estimated 87 million in 2020. In thinking about India’s journey, it is interesting to ask: In the historical journey of advanced economies, What year in the history of the US or UK roughly corresponds to India of 2021? This is a good way to obtain intuition on where India is, in the development journey.
….
In 2020, per capita GDP in India (in PPP terms at 2011 prices), is $6806. Looking back into the history of the US and the UK, we get the dates:

Comparable year in US

CGAP is running a series of articles on 50 years of financial inclusion in Bangladesh:

Bangladesh turned 50 this year. Over the decades since its independence, the country has made significant progress on many measures of development, among them financial inclusion. Bangladesh offers the financial inclusion community an opportunity to assess the impact of large-scale financial inclusion over a long period of time, going beyond the brief time horizons that often characterize global development. In this blog series, experts who know the country well explore Bangladesh’s financial inclusion journey and the impact it has had on the country’s broader development.

This entry was posted on September 9, 2021 at 1:50 pm

Fabio Canova  and Filippo Ferroni in this Chicago Fed paper (136 pages!):

This paper describes a package which uses MATLAB functions and routines to estimate VARs, local projections and other models with classical or Bayesian methods. The toolbox allows a researcher to conduct inference under various prior assumptions on the parameters, to produce point and density forecasts, to measure spillovers and to trace out the causal effect of shocks using a number of identification schemes. The toolbox is equipped to handle missing observations, mixed frequencies and time series with large cross-section information (e.g. panels of VAR and FAVAR). It also contains a number of routines to extract cyclical information and to date business cycles. We describe the methodology employed and

William Janeway (Affiliated Member of the Economics Faculty, Cambridge University and Senior Advisor and Managing Director, Warburg Pincus) narrates a sweeping history of financial bubbles in this INET lecture.

This entry was posted on September 9, 2021 at 1:39 pm and is filed under Academic research & research papers, Economics – macro, micro etc, Financial Markets/ Finance. You can follow any responses to this entry through the RSS 2.0 feed.
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Luis Guirola in this Central Bank of Spain paper:
Polarization can have economic effects if the hostility between political camps (i.e., affective polarization) shapes economic expectations. This paper shows that, in polarized contexts, agents disagree more over their expectations, and that partisanhostility – rather than differences in individual economic circumstances or beliefs about government policies – drives this disagreement.
The causal impact of partisanship is identied from the discontinuity created by shifts in Prime Ministers’ cabinet. The study of 134 shifts between 1993 and 2019 in 27 European countries reveals that left and right supporters with identical circumstances and information sets update their expectations in opposite directions, evidencing a partisan bias. Its

Interesting debate between Cass Sunstein and Mario Rizzo on whether Hayekian ideas and behavioral economics go hand in hand:
F.A. Hayek was one of the 20th century’s most influential economic, political, and social philosophers—and a Distinguished Senior Fellow at the Cato Institute. Cass Sunstein, currently at Harvard Law School and formerly the administrator of the Office of Information and Regulatory Affairs under President Obama, invokes Hayekian concepts for a theory of “libertarian paternalism,” which uses behavioral economics to justify a range of public policy interventions to frame individual choices in ways intended to nudge them toward better outcomes. Mario Rizzo, an economist at New York University, disputes the Hayekian justification for this vision. In May, they

Former RBI Governor Urjit Patel in this OMFIF piece argues that central banks should rework their macro models to adjust for climate change.
Given the tight causal relationship between economic activity and emissions, it is perhaps time for central banks to formally and rigorously internalise those aspects of climate change (and variability) that affect the output gap ‘block’ in the suite of models that underlie the reaction function metric. It may not be out of place for central banks to include a report on the subject as part of policy statements.
There are five, albeit not entirely independent, dimensions to take into account:

Effect of rising temperature and climate variability on short-term economic activity stemming from, for example, disruptions due to extreme floods.

IMF’s Quarterly Mag Finance & Development’s Sep-21 edition focuses on climate change.
In the edition, there is q&a with Maldives Environment Minister Aminath Shauna. She says for Maldives, fighting climate change is an existential battle. She also discusses how the pandemic created all kinds of problems for the small island nation:
F&D:What is at stake for Maldives when it comes to climate change?
AS:The right question is what is not at stake. The Maldives is one of the most low-lying nations in the world, and for us climate change is an existential threat. There’s no higher ground we can run to. It’s really just us, the islands, and the sea. Eighty percent of our islands are less than a meter above sea level. Over 90 percent of the islands report flooding annually. Ninety-seven

Marialuz Moreno Badia, Juliana Gamboa-Arbelaez and Yuan Xiang in this IMF paper:
In the wake of the COVID-19 pandemic, debt levels in emerging and developing economies have surged raising concerns about fiscal sustainability.
Historically, negative interest-growth differentials in these countries have played a debt-stabilizing role. But is this enough to prevent countries from falling into debt distress?
Drawing from a sample of 150 emerging and developing economies going back to the 1970s, we find that interest-growth differentials have remained relatively low, dampening debt increases in the run up to a crisis. But in the face of persistent primary deficits, debt service tends to rise abruptly—particularly in emerging markets—and a fiscal crisis ensues.
There is also evidence

Quanteco Research is a Mumbai based research house specialising in delivering business economics and financial markets intelligence to corporates and investors.
Came across their India Macrobook-FY 22 Economic Outlook. Interesting way to present India’s economic outlook. Students interested in macroeconomics and financial markets can learn from the report and look to make similar presentations.

This entry was posted on September 7, 2021 at 1:28 pm and is filed under Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed.
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Tamilnad Merchantile Bank completes its 100 years in 2021. The Bank started as Nadar Bank and then changed its name to Tamilnad Merchantile Bank in 1962.  Post-1991, one objective was to push Indian banks to list on stock exchanges. However. TMB has avoided the listing as promoters wanted to control the bank.
TMB has been under trouble and under controversy lately and could not avoid not listing anymore. Thus, TMB filed for its IPO document with SEBI yesterday (the file might take time to download).  Vishwanath Nair reported of the IPO in Bloomberg Quint and also added that the bank is riddled with serious governance issues. There is a reason it did not want to list.
As a student of banking history, what caught my eye was this mention of missing records at the Bank:
Some of our

Ian Buruma reflects on the Afghan Crisis. He says US President Joe Biden knew what British Prime Minister Clement Attlee knew in 1947:

On February 20, 1947, Clement Attlee, the socialist British prime minister, informed parliament that India would become independent no later than June 1948. Attlee could not wait for the British to withdraw from a country whose leaders, Muslim and Hindu, had long been clamoring for independence. But India was seething with violent unrest. Muslim leaders were afraid of Hindu dominance. Worried that a civil war might land the British in an uncontrollable situation, Attlee decided to end the British Raj even earlier.
Indian independence began on August 14, 1947. Pakistan broke away. Horrendous violence between Hindus and Muslims claimed a half-million

Peter Andre and Armin Falk survey 10000 academic economists to find what is worth knowing in economics. They present their findings on voxeu:

Research shapes policy. But what we choose to study is subjective. This column uses a global survey of almost 10,000 academic economists to find their opinions on what economic research should look like. Many economists think that economic research should become more policy-relevant, multidisciplinary, and disruptive, and should pursue more diverse research topics. 

What areas should econs focus on?

we ask which share of papers should be written on which topic. To express their view, scholars could allocate 100 points between 19 primary research topics (1st layer of the JEL subject descriptions), Each point corresponds to 1% of the

Barkin Cihanli of Bard College – The Levy Economics Institute in this short paper surveys the evolution of Keynes’s eco  thought:

There has been on-going controversy about the evolution of John Maynard Keynes’ thought on economic theory among economists of different schools of thought. Even though Keynes have always been considered a revolutionary in economic thought in relation with his ideas in the General Theory, Keynes did not always think about the economic thought the way he did in the General Theory. Some economists have argued that Keynes’ training in economics in Cambridge had made him subscribe to the Classical economics in his earlier years. Some has furthered this argument that Keynes’ Treatise on Money (1930) contained elements of the Classical economic theory, whereas

Prof Stefan Link of Dartmouth Univ has written this book: Forging Global Fordism: Nazi Germany, Soviet Russia, and the Contest over the Industrial Order.
In the promarket blog, there is an excerpt from the book:
The history of automotive mass production begins with a puzzle. Why did Detroit, of all places, pioneer the industry that would shape the twentieth century like no other? Historians and geographers have long picked at this question without pulling out fully satisfactory answers. The question matters because, initially, it seemed that an arc of carmakers from southern Germany to northern France to New England would dominate the new industry. In 1900, European manufacturers as well as those in Connecticut, Massachusetts, and New York were building stately horseless carriages for

Ms Fundi Tshazibana, Deputy Governor for the South African Reserve Bank in this speech given in July 2021 quotes Daniel Kahnemann’s Thinking Fast and Slow.
The title borrows from Daniel Kahneman’s well-known book, Thinking, fast and slow. On 6 July 2020, Project Syndicate published an op-ed by Mohammed El-Erian also titled ‘Central banking, fast and slow’. The title of this speech was finalised in June and published in the Nelson Mandela Bay Leadership Summit programme before this article appeared. This speech deals with a different subject matter to the op-ed and the shared title is purely coincidental.
To give context to the title, the book talks about two modes of thought: System 1 thinking, which is fast, instinctive, and emotional; and System 2 thinking, which is slower, more